Nasdaq Composite Jumps 400 Points After US Fed Keeps Rates Unchanged, Forecast Two Rate Cuts in 2025

The US Federal Reserve kept its benchmark interest rate unchanged on March 19 and anticipated two rate cuts this year after a two-day Federal Open Market Committee (FOMC) meeting. The central bank's decision to hold interest rates at 4.25% to 4.5% comes amid rising inflation and aligns with market expectations.

Despite the Fed's projections for slower growth, higher unemployment, and more market uncertainty this year, the US stock market gained on the news of more rate cuts. 'Uncertainty around the economic outlook has increased,' the Fed stated today.

The S&P 500 index is up 1.61% or 92 points to 5,706. Meanwhile, the Nasdaq Composite jumped 2.27% or nearly 400 points to 17,901 at 3.10 p.m. ET.

While sticky inflation generally leads the Fed to keep rates elevated, an economic growth slump and rising unemployment often translate to rate cuts to encourage borrowing and consumption to lift the economy.

'Recent indications, however, point to a moderation in consumer spending following the rapid growth seen over the second half of 2024,' said Fed chair Jerome Powell, adding that the US economy is 'strong overall.'

Goldman Sachs Asset Management's global co-head, Whitney Watson, told CNBC that the central bank's cautious tone was expected as it waited to see the developments in the economy.

'Revisions to FOMC member's projections had a somewhat stagflationary feel with forecasts for growth and inflation moving in opposite directions,' she said. 'For the time being, the Fed is in wait-and-see mode, as it monitors whether the recent growth slowdown develops into something more serious.'

Powell Links Trump's Tariff Policies To Inflation Growth

The Fed chair said in a press conference after announcing the rates decision today that the exact link between Donald Trump's tariff plans and near-term price growth isn't completely clear, but the tariffs are a factor in rising market expectations that price growth will speed up.

'Inflation has started to move up now, we think, partly in response to tariffs, and there may be a delay in further progress in the course of this year,' Powell said. However, he believes firmer inflation would likely be 'transitory.'

Several indicators suggest that consumer spending and employer hiring are slowing down. The initial burst in economic growth after Trump's election win also appears to have stalled.

Moreover, Elon Musk-led Department of Government Efficiency's drastic federal workforce downsizing is also fueling concerns about pressure on local economies and uncertainty among investors. The impact on the stock market was evident from the benchmark indexes slipping into the correction zone.

'The Fed is as lost in the wilderness as the rest of us trying to decipher the continual shifts in economic policy from 1600 Pennsylvania Avenue,' said Omair Sharif, managing director of Inflation Insights consultancy, in a note to clients.

Elsewhere, former Treasury Secretary Larry Summers posted on X yesterday that the Fed is facing the most difficult challenge when the 'stagflationary shock' is both lifting prices and reducing jobs. 'This is what tariffs do,' Summers added.

Earlier this week, Goldman Sachs analysts told clients that 'signals from the Administration that they are not prepared to rule out recession are compounding the recent growth worry.'