(Bloomberg) — U.S. stocks fell further and bond yields rose after the Federal Reserve cut interest rates by a quarter point, as expected, but lowered its forecast for rate cuts in 2025.

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The S&P 500 fell nearly 2% and the Nasdaq 100 fell 2.6%. The policy-linked yield on two-year U.S. Treasury notes rose 10 basis points to 4.35%. Bloomberg’s dollar rate rose to its highest level since November 2022.

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On Wednesday, Fed Chairman Jerome Powell reiterated that the central bank will be more cautious as it considers further interest rate adjustments. He also added that this was still “significantly restrictive” and the committee was “on track to continue the cuts”.

Powell reiterated at the press conference that the Fed is committed to meeting its 2 percent target.

“We will not be satisfied with that,” he said, adding that inflation remains above this target.

Markets are reacting to several Fed officials promising fewer rate cuts next year than they expected a few months ago. Traders currently expect cuts of less than half a percentage point in 2025.

“Even compared to the fairly restrictive expectations, the points are restrictive – it takes a lot longer to get to ‘neutral’ – in fact, you don’t get there in the forecast horizon,” said Scott Ladner of Horizon Investments. “Furthermore, Powell describes that this shift is due to inflation concerns rather than a robust economy and is therefore hawkish for the ‘wrong reason’.”

Max Gokhman, senior vice president at Franklin Templeton Investment Solutions, called Powell “a hawk in dove clothing.”

“Although he downplayed the recent slowdown in inflation while boasting about the strength of economic momentum, he nevertheless suggested that the tariffs will not be dismissed as temporary and that the forecast for two cuts in 2025 is necessary because policy must remain restrictive he said.

Whitney Watson of Goldman Sachs Asset Management expects the Fed to forego a rate cut in January before continuing its easing policy in March.

“While the Fed has opted to round out the year with a third straight rate cut, its New Year’s resolution appears to suggest a slower pace of easing,” said Watson, global co-head and co-chief investment officer of fixed income and liquid solutions in the company said.

Important events this week:

• Interest rate decision for Japan, Thursday

• Interest rate decision by the British BOE

• US revised GDP, Thursday

• Japan CPI, Friday

• Key interest rates for Chinese loans, Friday

• Eurozone consumer confidence, Friday

• Personal income, spending and PCE inflation in the US, Friday

The story continues