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A cut now, but less ahead
The Federal Reserve on Wednesday cut interest rates by 25 basis points and raised its federal funds rate to a target range of 4.25% to 4.5%. In the Fed’s dot chart showing interest rate expectations for the coming years, the central bank largely indicated just two rate cuts for 2025, fewer than the four cuts previously forecast in September.

Strong sell-off in the markets
US markets experienced a sharp sell-off on Wednesday. The Dow Jones Industrial Average lost more than 1,000 points, down 2.58% for the tenth straight day of losses. The S&P 500 decreased by 2.95% and the Nasdaq Composite fell by 3.56%. The pan-European Stoxx 600 – which ended trading before the Fed’s decision – gained 0.15%.

Tesla shares are reversing
Tesla Stocks slumped 8.3% on Wednesday, their biggest decline since Donald Trump won the U.S. presidential election in November, amid heavy losses in the broader market. While shares are still up 75% since the Nov. 5 election, the company’s stock appears to be “largely disconnected from fundamentals,” Barclay analysts wrote in a report Wednesday.

Disappointing instructions from Micron
Shares of micron fell more than 15% in extended trading after the company issued significantly weaker-than-expected guidance, although it beat earnings expectations for the latest quarter. For the current quarter, Micron expects sales of around $7.9 billion. That’s far less than the $8.98 billion expected by analysts, according to LSEG.

(PRO) Why the markets were so disappointed
The stock market suffered a shock after digesting the Fed’s forecast that monetary policy will remain tighter in 2025 than previously forecast. CNBC’s Sarah Min examines why investors were so disappointed and what market watchers think about the Fed’s decision.

Wednesday’s dramatic market selloff is a stark reminder that forecasts influence stock moves much more than current circumstances.

The Fed cut its key interest rate by 25 basis points. Borrowing costs will fall and business investment should be boosted, which should lead to job creation and boost growth. This, in turn, theoretically drives stocks higher.

But investors were already confident about the Fed’s rate cut on Wednesday. Before the Fed meeting concluded in December, the futures market suggested a 98 percent chance of a 25 basis point rate cut, according to the CME FedWatch tool. This means that investors had already priced the benefits of the rate cut into stocks. In other words, yesterday’s cut would have little impact on stock prices. Investors may have priced in even more optimism than this single rate cut. Just a day ago, investors were betting with an 81.6% probability that the Fed would cut interest rates by another 25 basis points in January.

Fed Chairman Jerome Powell has dashed this hope.

“With today’s action, we have cut our key interest rate by a full percentage point from its peak, and our monetary policy stance is now significantly less restrictive,” Powell said at his post-meeting press conference. “We can therefore be more cautious when considering further adjustments to our key interest rate.”

The possibility of a 25-point rate cut next month faded to just 6.4%, according to the futures market, after the Fed released its updated dot chart that showed just two rate cuts for 2025.

It is this massive paradigm shift – from the hope that the Fed will go full throttle on rate cuts to the reality that it may even take its foot off the accelerator – that is sending markets into turmoil.

In other words, it’s like waking up on Christmas Day excited to receive a gift and then realizing you’re out of presents. This disappointment wouldn’t happen any other time of year.

As David Russell, global head of market strategy at TradeStation, darkly noted: “Goodbye, punch. No Christmas cheer from the Fed.”

— CNBC’s Daria Mercado, Jeff Cox, Yun Li, Brian Evans and Lisa Kailai Han contributed to this report.