Stock market today: Dow drops 1,123 points and bond yields soar as markets adjust rate outlook after Fed meeting

• US stocks plummeted Wednesday after the Fed cut rates but dialed back the outlook for easing next year.
• The central bank cut rates by 25 basis points but projected only two rate cuts in 2025.
• Bond yields spiked as markets adjusted their outlook for interest rates in the coming year.

US stocks cratered on Wednesday, with the Dow Jones Industrial Average falling more than 1,100 points amid its longest losing streak in 50 years after the Federal Reserve delivered an expected rate cut but hardened its tone on future policy easing.

The S&P 500 lost almost 3%, while the Nasdaq composite fell over 3.5%. Major indexes had been up ahead of the meeting but tanked sharply as traders digested projections from the central bank and tuned in to Fed Chair Jerome Powell's press conference.

Bond yields soared after the Fed's summary of economic projections and Powell's remarks indicated just two rate cuts in 2025. The 10-year Treasury yield spiked 10 basis points to 4.49%. The two-year Treasury, which is highly sensitive to Fed policy, surged 10 basis points to 4.34%.

The Fed cut its benchmark rate another 25 basis points, in line with what investors had expected. That brings the total level of policy easing to 100 basis points in 2024.

Markets, though, were disappointed by the Fed's projections, which showed that central bankers had slashed expectations for rate cuts into next year. Fed officials are now penciling in just two cuts in 2025, down from the four that were projected in September.

Powell also gave hawkish commentary on the path of monetary policy, fueling an afternoon sell-off.

"With today's action, we have lowered our policy rate by a full percentage point from its peak, and our policy stance is now significantly less restrictive. We can therefore be more cautious as we consider further adjustments to our policy rate," Powell said in prepared remarks Wednesday afternoon.

He added that the central bank would look for "further progress" in lowering inflation and resilience in the labor market when considering further rate cuts.

Traders quickly adjusted their rate expectations into next year. Odds of a January rate cut dropped to 11%, down from the 17% odds priced in yesterday, according to the CME FedWatch tool.

"Stronger expected growth married with higher anticipated inflation — it's no wonder the Fed reduced the number of expected rate cuts in 2025," Jack McIntyre, a portfolio manager at Brandywine Global, said in a statement Wednesday afternoon.

"Higher for longer is the mantra headed into 2025," Greg McBride, the chief financial analyst at Bankrate, said.

Here's where US indexes stood at the 4 p.m. closing bell on Wednesday:

• S&P 500: 5,872.16, down 2.95%.
• Dow Jones Industrial Average: 42,326.87, down 2.58% (-1,123 points).
• Nasdaq composite: 19,392.69, down 3.56%.

The decision to cut interest rates in December was a "closer call," but Fed officials moved forward with the decision to balance their goals of lowering inflation and maintaining maximum employment, Powell said.

Still, some on Wall Street balked at the Fed's decision to cut rates at all this month, given the recent uptick in inflation. Consumer inflation ticked higher to 2.7% in November, hotter than the prior month's 2.6% year-over-year growth, while wholesale inflation was higher than expected for the month.

"This Federal Reserve with Powell has been the helicopter parent of the economy," Byron Anderson, the head of fixed income at Laffer Tengler Investments, said. "The soft landing has been achieved, take the win already. Inflation has plateaued well above goal; unemployment has plateaued and yet the Fed keeps cutting rates. My question is which of its dual mandates is it protecting the economy from by cutting?"

"The results of this meeting raise the question: if the market wasn't expecting a rate cut today, would the Fed actually have delivered one? I suspect not," Brandywine's McIntyre said.

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In commodities, bonds, and crypto:

• West Texas Intermediate crude oil rose 0.16% to $70.19 a barrel. Brent crude, the international benchmark, dipped 0.52% to $73.01 a barrel.
• Gold edged lower 1.54% to $2,605.20 an ounce.
• The 10-year Treasury spiked 10 basis points to 4.494%.
• Bitcoin dropped 5% to $101,164.