Disappointed expectations of further interest rate cuts by the Fed weighed on the markets

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A cut now, but less ahead
The US Federal Reserve reduced interest rates on Wednesday by 25 basis points, pushing the federal funds rate to a target range of 4.25% to 4.5%. In the Fed’s dot plot, which shows interest rate expectations for the coming years, the central bank has largely indicated only two tariff cuts for 2025less than the four cuts previously forecast in September.

The Bank of Japan maintains interest rates
The Bank of Japan maintained its benchmark on Thursday Interest rate unchanged at 0.25%. The yen then weakened to a one-month low against the dollar. Analysts were divided on the BOJ’s move: A CNBC poll showed that 54% of respondents expected the BOJ to hold interest rates, while a Reuters poll of economists expected the BOJ to raise interest rates.

Strong sell-off in the markets
US markets heavily sold out on Wednesday. The Dow Jones Industrial Average lost more than 1,000 points, down 2.58% for the tenth straight day of losses. The S&P 500 decreased by 2.95% and the Nasdaq Composite fell by 3.56%. On Thursday, Asia Pacific markets followed the collapse of Wall Street. South Korea’s Kospi index fell as much as 1.8%, one of the sharpest declines in the region.

Disappointing instructions from Micron
Shares of micron fell more than 15% in extended trading after the company declined weaker than expected forecastalthough it beat earnings expectations for the most recent quarter. For the current quarter, Micron expects sales of around $7.9 billion. That’s far less than the $8.98 billion expected by analysts, according to LSEG.

(PRO) 2025 expectations for European stocks
As the year draws to a close, major investment banks announce their outlook for the European market for 2025. Their views range from cautiously optimistic to more optimisticalthough almost all expressed concerns about geopolitics and trade tensions.

But investors were already confident about the Fed’s rate cut on Wednesday. Before the Fed meeting concluded in December, the futures market suggested a 98 percent chance of a 25 basis point rate cut CME FedWatch tool. This means that investors had already priced the benefits of the rate cut into stocks. In other words, yesterday’s cut would have little impact on stock prices.

Investors may already have priced in more than a single rate cut. A week ago, investors were betting there was a 20.8% chance the Fed would cut interest rates to between 4% and 4.25% in January.

Fed Chairman Jerome Powell dashed these hopes.

“With today’s action, we have cut our key interest rate by a full percentage point from its peak and our monetary policy stance is now significantly less restrictive,” Powell said his press conference after the meeting. “We can therefore be more cautious when considering further adjustments to our key interest rate.”

The possibility of a 25-point rate cut next month narrowed to 8.6%, according to the futures market, after the Fed released its updated dot chart that showed just two rate cuts for 2025.

It is this shift – from the hope that the Fed will go full throttle on rate cuts to the reality that it may even take its foot off the accelerator – that is roiling markets.

In other words, it’s like waking up on Christmas Day excited to receive a gift, only to realize you’re out of presents. This disappointment wouldn’t happen any other time of year.

As David Russell, global head of market strategy at TradeStation, darkly noted: “Goodbye, punch. No Christmas cheer from the Fed.”

— CNBC’s Daria Mercado, Jeff Cox, Yun Li, Brian Evans and Lisa Kailai Han contributed to this report.