US Stocks Drop after Federal Reserve Rules Out Cuts

The US stock market has dropped after the Federal Reserve ruled out interest rate cuts this year.

Investors were disappointed after the central bank signaled it would do more work to bring inflation back to target.

US30 – Daily Chart

US30 - Daily Chart

The Dow Jones index has found resistance ahead of the 35,000 level and could make a pullback from here.

U.S. stocks and Treasuries were lower after a better-than-expected jobs report underlined the labor market’s resilience to the aggressive interest rate hikes from the central bank.

Private sector employment rose by 235,000 in December, ahead of estimates, according to ADP. Economists polled by Reuters had expected a gain of 150,000, suggesting the U.S. labor market remains tight despite a slowing economy. Initial unemployment claims for the last week of December fell to 204,000 from a revised 223,000 the previous week.

James Bullard, president of the St Louis Fed branch, said last week that the central bank’s policy rate is not yet restrictive, but he expects it will reach a “restrictive zone” in 2023.

At the recent December meeting, policymakers said “a restrictive policy stance would need to be maintained” until economic data “provided confidence that inflation was on a sustained downward path to 2%, which was likely to take some time”.

The US30 index has the potential to pull back from current levels after edging higher since December 20. Thursday has inflation data for the U.S. economy, with a drop from 6.0% to 5.7% expected in the December core inflation numbers. The headline inflation rate is expected to drop from 7.1% to 6.5%, but there is a chance that such a significant drop may not happen, and the Dow Jones could see a correction.

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