U.S. stock index futures rose on Thursday as investors digested the Federal Reserve’s projections of fewer-than-expected interest rate cuts and higher inflation next year that pummeled Wall Street a day earlier.
The Fed on Wednesday said it expects to make just two 25 basis point cuts in 2025, half a percentage point less than its September forecast, and raised inflation expectations for the first year of the new Trump administration, sending the three main U.S. stock indexes to their sharpest daily declines since August.
Traders now see just one quarter-point rate reduction by mid-2025, and see less than two cuts in total by the end of the year, compared with last week’s expectations of three rate cuts.
“Projecting only two rate cuts next year indicates that the Fed acknowledges the ongoing ‘remarkable’ strength of U.S. economic conditions and suggests that further reductions in their policy rate may not be necessary,” said JoAnne Bianco, partner and investment strategist at Bondbloxx.
The benchmark S&P 500 hit a near one-month low on Wednesday as investors adjusted their risk exposure to reflect the impact of higher borrowing costs in 2025, while the Dow dropped for the tenth straight session, its longest streak of losses since 1974.
At 7:02 a.m. ET, Dow E-minis were up 180 points, or 0.43%, S&P 500 E-minis were up 29.5 points, or 0.50% and Nasdaq 100 E-minis were up 91.25 points, or 0.43%.
The hawkish shift from the Fed comes just three months after the U.S. central bank began its monetary easing cycle with a larger-than-usual 50 basis point interest rate cut that spurred risk appetite and helped push Wall Street to record levels.
Since then improving U.S. economic data and the prospects of higher inflation under Donald Trump’s second U.S. presidential term have weighed on the Fed’s view.
“If the Fed is holding off on a belief that we’re seeing an end to disinflation, then equity faces renewed headwinds and drawdown,” said Chris Weston, head of research at Pepperstone.
The CBOE volatility index, Wall Street’s fear gauge, eased to 20.91 points from a four-month high of 28.32 a day earlier.
Thursday’s data docket includes a final reading of gross domestic product for the third quarter, alongside weekly jobless claims data.
Stocks broadly recovered some ground in premarket trading from sharp losses on Wednesday. Megacap Tesla (NASDAQ: TSLA) and Nvidia (NASDAQ: NVDA) gained over 2% each.
Among corporate news, Micron Technology (NASDAQ: MU) slumped 14.5% after its forecast of quarterly revenue and profit below estimates.
Accenture (NYSE: ACN) gained 5.6% as the IT services provider beat Wall Street estimates for first-quarter revenue, while homebuilder Lennar shed 10.4% after reporting fourth-quarter results below estimates.
SentinelOne (NYSE: S) rose 3.1% as Jefferies upgraded the cybersecurity firm’s shares to “buy” from “hold.”
