The major stock indexes fell sharply on Wednesday after the Federal Reserve cut interest rates by one quarter of a point but officials indicated that they see fewer cuts and more persistent inflation ahead.
The Dow Jones Industrial Average fell by more than 500 points, or 1.2 percent. The Nasdaq Composite dropped two percent. The S&P 500 declined 1.5 percent. The Russell 2000 index of smaller companies fell by more than 2.6 percent.
The projections of Fed officials, which are released at ever other meeting of the Federal Open Market Committee, indicated a median forecast of just two cuts next years, down from four when the Fed last released projections in September. The Fed now sees the Fed funds rate at 3.9 percent at the end of next year, a half a point higher than the earlier projections.
The Fed’s projections for further out also show higher rates. The Fed now sees its benchmark rate at 3.4 percent at the end of 2027, a year later than it had projected hitting that level just a few months ago. In September, the Fed was projecting a 2.9 percent rate at the end of 2027.
The longer-run forecast was once again raised, this time going from 2.9 percent to 3.0 percent. The Fed has been moving this rate up steadily after years of forecasting a longer-run tendency of 2.5 percent.
Similarly, the Fed now thinks inflation will remain higher for longer. The new projections show the median forecast for inflation at the end of next year is 2.5 percent, up from the September projection of 2.1 percent. What’s more, that’s higher than the Fed sees inflation this year, so the Fed is expecting inflation to go higher.