The Federal Reserve lowered interest rates by 0.25 percentage points but indicated a slower pace of rate cuts in the coming year, which drove the dollar to a two-year high and sparked a sell-off in both US and global stocks. New interest rate sits at 4.5%.

On Wednesday, the Federal Open Market Committee voted to reduce the key interest rate to a range of 4.25-4.5 percent, marking its third consecutive cut. Cleveland Fed president Beth Hammack dissented, preferring to keep rates unchanged.

The Fed’s projections for rates in 2025 now suggest fewer cuts than earlier expectations, reflecting concerns about persistent inflation. As part of these concerns, officials also revised their inflation forecast for the upcoming year upward. Earlier, Jerome Powell has made it clear there will be four interest rate cuts in 2025, now retracting those comments, saying there will be only two.

Markets were expecting lower interest rates in order to do business more easily, and the reaction on recent Powell comments have been devastating.

Following the Fed’s announcement, Wall Street stocks saw sharp declines. The S&P 500 index fell nearly 3 percent, and the tech-heavy Nasdaq Composite dropped 3.6 percent. Many of the biggest gainers in the 2024 stock rally took a hit. Tesla, led by Elon Musk, fell 8.3 percent, Meta (Facebook’s parent company) dropped 3.6 percent, and Amazon saw a 4.6 percent decline.

Smaller publicly traded companies, which are particularly vulnerable to shifts in the US economy, also experienced significant losses. The Russell 2000 index plunged by 4.4 percent.

European and Asian stock markets also dropped on Thursday, with South Korea and Taiwan’s main indices falling 1.8 percent and 1.6 percent, respectively.

Europe’s Stoxx 600 index was down 1.3 percent, and the FTSE 100 fell by 1.2 percent in early trading.