The Dow and broader U.S. stock market reversed gains Wednesday after the Federal Reserve initiated its long-awaited interest-rate cut – but not without some dissension.
All three major U.S. indexes were trading slightly higher ahead of the Federal Reserve’s policy statement , which was released at 2:00 p.m. ET. An initial reading of the decision sent stocks tumbling, with the Dow Jones Industrial Average plunging 404.42 points, or 1.5%, to 26,793.42.
The broad S&P 500 Index of large-cap stocks followed suit, dropping 1.5% to 2,966.67. Ten of 11 primary industries fell, with consumer staples leading the pack.
Meanwhile, the technology-focused Nasdaq Composite Index fell 1.3% to 8,169.37.
The Federal Reserve on Wednesday took preemptive measures to keep the economy on firm footing by lowering interest rates for the first time in over a decade.
Central-bank officials voted to lower the federal funds rate by a quarter-point to a range of 2% and 2.25% and left the door open to additional cuts in the next few months. While the decision was widely expected, a large minority of traders thought that a 50 basis-point reduction was possible. Most traders expect a second rate cut in the fall, according to CME Group’s FedWatch Tool .
“In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2 to 2-1/4 percent,” the Federal Open Market Committee said in its official statement.
The decision to resume low-rate stimulus was not a unanimous one. Kansas City Fed President Esther George and Eric Rosengren of the Boston Fed both voted to keep interest rates on hold for the time being. Rosengren first signaled his opposition to a rate cut earlier this month due to positive economic data since mid-June.
Positive data continued to roll in on Wednesday after ADP Inc. reported better than expected jobs numbers for July. Private-sector payrolls increased by 156,000 in July following a revised 112,000 in June. Analysts had expected a monthly increase of 150,000. Although the numbers are well below the post-crisis average, they showed a healthy increase across the service and goods-producing industries.
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