Shares in Australia’s second largest company by market capitalisation, Commonwealth Bank of Australia, shed more than 3% in value on Friday (AEDT) as investors digested a sudden change in outlook for United States interest rates.
Commonwealth Bank (ASX: CBA) ended at A$150.26, down $5.73 compared with the previous close, the lowest level in a month and capitalising the largest of Australia’s Big Four Banks at $251.5 billion.
Investors were spooked by the U.S. Federal Reserve Board’s projection that it would cut interest rates only twice in 2025, compared with previous expectations of four cuts next year.
This helped to drag down Australian equities indices with the ASX 200 dropping 1.2% to close at 50 day low and slicing the gains over the last year to 6.3%.
Among the other Big Four, ANZ Group Holdings (ASX: ANZ), National Australia Bank (ASX: NAB) and Westpac Banking Corporation (ASX: WBC) fell 2.3%, 2.2% and 1.2% respectively on Friday.
When reducing its benchmark interest rate by 25 basis points (bp) on Wednesday (Thursday AEDT) the Federal Reserve signalled a more cautious approach to further reductions with only two additional cuts in 2025 seen in its "dot plot" projections.
This was interpreted as a reaction to U.S. President-elect Donald Trump’s economic platform, including tariff increases and tax cuts, which are expected to be inflationary.