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US long-term bond yields climbed higher again on Thursday, a day after Federal Reserve officials said they expected to cut interest rates much more slowly next year than previously anticipated.

The yield on the benchmark 10-year Treasury, which moves inversely to its price, rose as much as 0.09 percentage points to 4.59 per cent, its highest level in more than six months, after jumping on Wednesday.

The dollar gained a further 0.3 per cent against a basket of peers on Thursday, after soaring to the highest level since November 2022 in the previous session.

The Fed on Wednesday reduced interest rates by a quarter-point but unsettled investors after officials raised their 2025 inflation forecasts and cut back their projections for further rate cuts. It was the central bank’s final meeting before Donald Trump takes office next month.

Concerns about inflation stalling above 2 per cent contributed to Fed officials forecasting just half a percentage point worth of cuts in 2025, down from a full percentage point in their previous projections in September.

“I think the market had anticipated that the Fed would cut rates, but would also continue to give itself optionality for additional cuts for next year,” said Akshay Singal, global head of short-term interest rate trading at Citigroup.

Instead the US central bank had significantly shifted and had given itself more of an option “to keep rates on hold for a period of time” to absorb any impact from looser fiscal policy, he added, predicting the hawkish rhetoric would continue to boost the dollar.

Investors now see a roughly 85 per cent chance that the Fed either refrains from a rate reduction, or cuts rates once or twice next year, according to CME Group data based on federal funds futures.

The S&P 500 was 0.4 per cent higher in afternoon trading on Wall Street, well below earlier levels that had pushed it up more than 1 per cent. The US’s main equities barometer slid nearly 3 per cent on Wednesday, in its biggest fall since August.

The tech-heavy Nasdaq Composite gained 0.3 per cent after dropping 3.6 per cent on Wednesday. Six of the Magnificent Seven tech behemoths — Apple, Microsoft, Alphabet, Amazon, Meta and Nvidia — advanced. However, Tesla, which has been boosted in part by co-founder Elon Musk’s warm relations with president-elect Trump, slipped 2 per cent after sinking 8 per cent in the previous session.

“We’ve been so focused on Trump [in recent weeks] but right now it seems to almost be back to a Jay Powell type stock market,” said Jeff Weniger, head of equity strategy at WisdomTree, referring to the chair of the Fed.

The Fed’s hawkish outlook ricocheted into markets in Europe and Asia on Thursday. Europe’s benchmark Stoxx 600 dropped 1.5 per cent and the UK’s FTSE 100 fell 1.1 per cent. Earlier, markets in India, Japan, South Korea and Hong Kong also closed in the red.

Emerging market stocks were also hit, with MSCI’s broad EM index sliding 1.2 per cent.

ATLANTA — Fulton County District Attorney Fani Willis and her office cannot continue prosecuting the Georgia election interference case involving President-elect Donald Trump, the Georgia Court of Appeals has ruled.

However, the court declined to dismiss the case itself. Fulton County prosecutors quickly notified the court that they intend to appeal to the Georgia Supreme Court.

“While this is the rare case in which DA Willis and her office must be disqualified due to a significant appearance of impropriety, we cannot conclude that the record also supports the imposition of the extreme sanction of dismissal of the indictment under the appropriate standard,” the appeals court judges wrote. The three-judge panel voted 2-1 to disqualify Willis.

The case has been thrown into disarray since Willis admitted to a personal relationship with special prosecutor Nathan Wade, whom she hired for the case.

A trial court had ruled in March 2024 that Willis could remain on the case amid the misconduct allegations only if Wade resigned his appointment. Several defendants appealed that ruling and the case has largely been halted since this summer.

Trump is unlikely to face trial until 2029, if at all. Trump’s lawyers have separately asked the courts to dismiss his charges entirely now that he is president-elect.

The Georgia case represents the last remaining criminal charges against Trump.

Whatever happens to Trump’s Georgia charges, the 14 other remaining co-defendants could face trial in the sweeping racketeering case as soon as late next year.

If the Georgia Supreme Court ultimately takes up the case and upholds the decision, it would fall to the director of the Prosecuting Attorneys’ Council of Georgia to appoint a new prosecutor. That prosecutor would have the discretion to decide whether to continue the case.

Trump’s Georgia attorney Steve Sadow wrote in a statement that the appeals court ruling was “well-reasoned.” He wrote: “As the Court rightfully noted, only the remedy of disqualification will suffice to restore public confidence.”

The district attorney’s office has not responded to a request for comment.

A romantic relationship at the center of misconduct allegations

The case focuses on efforts by Trump and his allies to overturn Georgia’s 2020 election result by pressuring state officials and election workers, submitting a slate of false electors and attempting to tamper with sensitive voting equipment. Four have pleaded guilty.

Then in January 2024, co-defendant Michael Roman, a former Trump campaign official, accused Willis of misconduct that threatened to derail the case. Roman alleged that Willis enriched herself by taking fancy vacations with Wade, funded by his compensation for the prosecution. Willis and Wade testified in front of the judge, saying she paid her own way on the trips or reimbursed him in cash for her share of the expenses.

Fulton Superior Judge Scott McAfee ruled in March that Willis’ romantic relationship with Wade created the appearance of a conflict of interest, but did not require her disqualification.

McAfee wrote that, “an outsider could reasonably think that the District Attorney is not exercising her independent professional judgment totally free of any compromising influences. As long as Wade remains on the case, this unnecessary perception will persist.”

The Court of Appeals was initially scheduled to consider the appeal in December, before abruptly cancelling oral arguments not long after Trump won a second term.

Trump had faced four separate prosecutions. He was convicted in New York for charges related to hush money payments, and a judge recently ruled that Trump can’t claim presidential immunity to overturn that conviction. But sentencing in the New York case has been delayed, and the two federal cases against Trump were dropped after he won election last month.

In the Georgia case, a key legal question in the proceedings has been whether state law requires the disqualification of a district attorney only for an actual conflict of interest or merely just the appearance of impropriety.

“After carefully considering the trial court’s findings in its order, we conclude that it erred by failing to disqualify DA Willis and her office,” concluded Judge Trenton Brown, writing for the majority. “The remedy crafted by the trial court to prevent an ongoing appearance of impropriety did nothing to address the appearance of impropriety that existed at times when DA Willis was exercising her broad pretrial discretion about who to prosecute and what charges to bring.”

“While we recognize that an appearance of impropriety generally is not enough to support disqualification, this is the rare case in which disqualification is mandated and no other remedy will suffice to restore public confidence in the integrity of these proceedings,” Brown continued.

Judge Todd Markle concurred. Brown and Markle were both appointees of former Republican Gov. Nathan Deal. Judge Benjamin Land, appointed by Republican Gov. Brian Kemp, dissented.

“For at least the last 43 years, our appellate courts have held that an appearance of impropriety, without an actual conflict of interest or actual impropriety, provides no basis for the reversal of a trial court’s denial of a motion to disqualify,” Land wrote.

The decision caps a tumultuous year for Willis. At the onset of 2024, Willis was seen as a rising star on the national stage, as she spearheaded not only the indictment of a former president, but also pushed ahead on other high-profile cases, like a racketeering case involving rapper Young Thug. In May, she defeated a challenger in the Democratic primary.

But as the year wore on, those marquee cases stumbled or fell apart.

McAfee has quashed several counts in the Georgia election interference indictment, but 32 felony counts still remain.

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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

For markets, US Federal Reserve chief Jay Powell is the Grinch who stole Christmas. But the festive shakeout in bonds, currencies and stocks now under way in the wake of the US central bank’s latest pronouncements is a mini-crisis of investors’ own making.

Fed meetings, and the minutiae of its public statements, are always marquee events for investors, setting the tone across all major asset classes. Wednesday’s meeting, the last of 2024, always came with the potential for greater punch, given the timing — right on the cusp of Donald Trump’s second stint in the White House. 

The decision on rates itself — a quarter-point chop off the benchmark — was in line with expectations. But it went downhill from there, as the central bank’s apparent cooling on further cuts next year — an allusion to the potentially inflationary impact of Trump’s economic policies — has gone down like a mouldy mince pie.

US stocks nosedived, wiping out almost all of the gains in the S&P 500 benchmark index since Trump’s re-election day. The following morning brought a similar sea of red across Asian and European stocks too. The dollar popped higher, sending the euro and yen tumbling awkwardly hard, and US government bonds weakened, sending the yield on 10-year Treasuries forcefully above 4.5 per cent.

The Fed chair is facing some flak here. His comment in the post-meeting press conference that the year-end projection for inflation has “kind of fallen apart” is not the sort of self-assertion that investors seek in a Fed chair, and the pick-up in some inflation measures comfortably predates the reinauguration of Trump.

But markets are going through the wringer in no small part because the consensus among investors about the next steps for markets had become so intense — curdling hard around the themes of American exceptionalism in stocks and the vanquishing of inflation keeping bonds well supported. The path to an easy run in markets in 2025 had become exceptionally narrow and extremely crowded with like-minded views, and it has taken only a gentle push from the Fed to tip that out of balance.

The annual spectacle of year-ahead market outlooks from the big banks and asset managers demonstrated a near-unanimous set of views. Deutsche Bank is towards the top of the pack with its assessment that the benchmark S&P 500 index of heavyweight US stocks will ascend to 7,000 by the end of next year. After the overnight shock, that projection is 20 per cent above where we are now. It is punchy, but not wildly out of line. Core fundamental differences of opinion are hard to find. “The degree of uniformity in year-ahead projections has broken all previous records,” notes TS Lombard’s Dario Perkins.

The trouble with that was two-fold. First, it meant much, if not all, of the narrative was already baked in. Second, crowding around core themes tends to exaggerate the scale of market reactions when stuff goes wrong. Enter Powell stage left.

“Everyone’s portfolio is pointed towards US exceptionalism,” said Mike Riddell, a portfolio manager on Fidelity’s Strategic Bond Fund, speaking with some foresight the week before the Fed decision. “The consensus can be right, and we don’t see much to derail it. But if you see anything to move the narrative, you can get really violent market moves.”

We have been here before, in a range of different markets, but that does not prevent investors from making the same mistake over and over again. This time last year, Powell caught the market off guard in the opposite direction, dropping a hint of interest rate cuts that investors went on to exaggerate hugely out of proportion.

Crowded bets among investors also stung in early August, when a downbeat US labour market report blasted in to several popular and correlated market bets. In late September, deeply unloved Chinese stocks rocketed higher after Beijing unleashed stimulus measures to try and turn the hobbled economy and markets around. Investors had given China such a wide berth that stocks leapt 40 per cent in just a few days as funds piled in to a narrow entrance.

The latest ructions are a useful reminder that despite the disarming simplicity of the American exceptionalism theme, rakes are scattered all over markets for investors next year.

The assumption that the US economy will sail through the first year of Trump 2.0 is brave. Ignoring the (actually pretty obvious) banana skins, particularly around inflation, is “the ultimate ‘trust me’ trade” says Greg Peters, co-chief investment officer for PGIM Fixed Income. “It seems off to me.”

Now, investors should not assume that the Christmas holiday season will put all this angst to bed. As the final days of 2018 showed, portfolios can and do shake around wildly even when a lot of core markets are shut, on half-days, or on the go-slow. If anything, thinned-out trading volumes at this time of year can make matters worse. 

Some fund managers will be feeling sore about this year-end beating. But Powell has done us all a favour in reminding us that next year will not be for the faint of heart, and the wisdom of crowds is not always your friend.

katie.martin@ft.com