Volkswacht Bodensee - US stocks tumble, dollar rallies as Fed signals fewer 2025 rate cuts

US indices lurched lower following the 1900 GMT Fed announcement of the actions but fell further during and after Federal Reserve Chair Jerome Powell's news conference.

All 11 sectors dropped in the S&P 500, which finished three percent lower. Meanwhile the dollar jumped by more than one percent against the euro.

The market is now expecting interest rates will "remain higher for longer," said Briefing.com.

"Seeing the kind of decline we are experiencing right now indicates that the Fed took the market quite by surprise," said CFRA Research's Sam Stovall.

Although stocks often enjoy a late-year bounce referred to as the "Santa Claus rally," Stovall said the depth of Wednesday's drop could spur more selling if traders take profits.

"Maybe Santa is already on vacation," he said.

The US central bank, as expected, moved ahead with a decision to reduce interest rates by a quarter point as Fed Chair Jerome Powell offered an upbeat appraisal of the US economy.

But the announcement was coupled with the altered outlook on 2025 monetary policy.

After the latest interest rate cut, the Fed is now "significantly closer" to the point where no further cuts will be needed, said Powell, who emphasized the central bank still views two percent inflation as a critical long term priority.

In the last couple of months, the Fed's favored inflation measure has ticked higher, moving away from the bank's long-term target of two percent.

Forex Live analyst Adam Button described Powell's tone during the press conference as a shift "back to more emphasis on inflation falling rather than keeping the employment market strong."

Button said the market may also have been reacting to signs of President-elect Donald Trump's opposition to a spending package that seeks to avert a fast-approaching US government shutdown.

Elsewhere, official data Wednesday showed UK inflation had picked up in November, firming expectations that the Bank of England will hold off cutting its key interest rate on Thursday.

Traders were also waiting for the conclusion of the Bank of Japan's policy meeting Thursday.

In the car sector, Nissan shares soared, while Honda fell about three percent. Mitsubishi Motors -- whose top stakeholder is Nissan -- accelerated almost 20 percent.

UniCredit, Italy's second-largest bank, increased its stake in Germany's Commerzbank to around 28 percent amid growing speculation of an attempted buyout.

UniCredit's shares rose by 1.3 percent, while those in Commerzbank climbed 1.6 percent.

- Key figures around 2140 GMT -

New York - Dow: DOWN 2.6 percent at 42,326.87 (close)

New York - S&P 500: DOWN 3.0 percent at 5,872.16 (close)

New York - Nasdaq Composite: DOWN 3.6 percent at 19,392.69 (close)

London - FTSE 100: UP 0.1 percent at 8,199.11 (close)

Paris - CAC 40: UP 0.3 percent at 7,384.62 (close)

Frankfurt - DAX: FLAT at 20,242.57 (close)

Tokyo - Nikkei 225: DOWN 0.7 percent at 39,081.71 (close)

Hong Kong - Hang Seng Index: UP 0.8 percent at 19,864.55 (close)

Shanghai - Composite: UP 0.6 percent at 3,382.21 (close)

Euro/dollar: DOWN at $1.0365 at $1.0491

Pound/dollar: DOWN at $1.2581 from $1.2710

Dollar/yen: UP at 154.73 yen from 153.46 yen

Euro/pound: DOWN at 82.38 pence from 82.54 pence

Brent North Sea Crude: UP 0.3 percent at $73.39 per barrel

West Texas Intermediate: UP 0.7 percent at $70.58 per barrel

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R.Braegger--VB