Stocks ended lower on Wednesday amid volatile trade, despite an initial rally following the Federal Reserve’s decision to slash interest rates by half a percentage point.
Although traders initially cheered the larger-than-expected rate cut, concerns soon arose that the central bank might be acting to preempt a potential slowdown in the economy.
The Dow Jones Industrial Average dropped 103.08 points, or 0.25%, to close at 41,503.10. The index had been up by as much as 375.79 points immediately after the Fed's announcement before reversing course.
The S&P 500 lost 0.29%, ending at 5,618.26, while the Nasdaq Composite slipped 0.31% to 17,573.30. Both the Dow and S&P 500 hit new intraday records before sliding into the red.
In its first rate cut in four years, the Fed reduced its overnight lending rate to a range of 4.75% to 5.00%, down from 5.25% to 5.5%. The move reflects the central bank’s confidence that inflation is moderating towards its 2% target.
"The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance," the Fed said in a statement following the decision.
Leading up to the announcement, traders had grown increasingly optimistic about the possibility of a half-point cut, however, the stock market's initial rally quickly faded as investors digested the broader implications of the move.
Federal Reserve Chair Jerome Powell, speaking at a post-meeting press conference, sought to reassure markets that the aggressive rate cut was not a signal of imminent economic trouble.
"I don’t see anything in the economy right now that suggests the likelihood of a downturn is elevated," Powell said.
In the bond markets, yields on 10-year and 2-year Treasuries stood at 3.713% and 3.628%, respectively.
