Dow plummets 1,100 points after Fed scales back plans for interest rate cuts

The stock market plunged on Wednesday after the Federal Reserve scaled back its expectations for interest rate cuts next year.

The Dow Jones Industrial Average fell about 1,100 points, or 2.5%, the largest drop for the index since August.

The S&P 500 fell nearly 3%, while the tech-heavy Nasdaq plummeted about 3.5%.

The Fed cut interest rates a quarter of a percentage point on Wednesday, but the central bank also announced a fresh forecast calling for fewer interest rate cuts than expected just a few months ago.

The Fed's forecast on Wednesday said it anticipates only a half a percentage point of rate cuts next year and another half-percent cut in 2026. In September, the Fed had forecasted a percentage point of cuts next year and an additional half-percent cut in 2026.

Lower interest rates typically stimulate economic activity over the long term, keeping the economy growing and safeguarding the labor market. They also tend to drive up corporate profits and stock prices.

Speaking at a press conference in Washington, D.C., on Wednesday, Fed Chair Jerome Powell said the central bank may proceed at a slower pace with future rate cuts, partly because it has now substantially lowered interest rates.

Powell also said a recent resurgence of inflation influenced the Fed's expectations, noting that some policymakers considered uncertainty tied to potential policy changes under Trump.

"It's common-sense thinking that when the path is uncertain, you get a little slower," Powell said. "It's not unlike driving on a foggy night or walking around in a dark room full of furniture."