Market Overview

Tesla (NASDAQ: TSLA) shares tumbled 8.3% on Wednesday as U.S. stocks fell broadly in response to the Federal Reserve's latest policy commentary. NVIDIA (NASDAQ: NVDA) fell 1.1%, although it was up over 5% earlier in the trading session.

Additionally, Broadcom (NASDAQ: AVGO) saw a significant decline, with shares down 6.9% for the day. Both Tesla and Broadcom had previously experienced sharp rallies in recent weeks.

While the Federal Reserve announced a quarter-point rate cut on Wednesday, it also indicated a slower pace for future reductions, negatively impacting investor sentiment.

The Federal Open Market Committee (FOMC) adjusted the target range for the federal funds rate by 25 basis points to 4.25-4.50% in their December meeting. The updated statement suggested that future rate changes would be data-dependent, signaling a more cautious approach to monetary easing.

This shift in policy resulted in a rise in Treasury yields, putting additional pressure on equities.

The Summary of Economic Projections (SEP) released alongside the decision highlighted an altered outlook from the Fed. The median projection now anticipates only two more 25 basis point cuts in 2025, down from four, along with two additional cuts in 2026 and one in 2027, resulting in a terminal rate of 3.125%, now higher than the earlier estimate of 2.875%. Also, the SEP notes an uptick in the longer-run dot from 2.875% to 3.0%.

Investors responded to the Fed's adjusted inflation forecasts, which now show higher core and headline inflation through 2026. The unemployment rate forecast has been lowered for 2024 and 2025, while GDP growth expectations for the same years have been increased.

Wells Fargo (NYSE: WFC) economists commented that the wide dispersion in the dot plot for next year could reflect uncertainty surrounding the policy agenda of the incoming administration.