Overview
Jerome Powell, the chair of the Federal Reserve, stated that there would be no rush to lower interest rates again until inflation and employment data warranted it. The U.S. central bank left interest rates constant on Wednesday.

Rate Cuts on hold
Powell stated that it makes sense for the Fed to proceed cautiously after reducing interest rates by 100 basis points. He does, however, believe that the Fed’s current policy rate—which ranges from 4.25 to 4.25%—remains significantly higher than the neutral rate. This indicates that the policy is restrictive, which hinders growth and lowers inflation.

Trump’s Policy Changes uncertainty
With a sound set of macroeconomic fundamentals that haven’t changed much in recent months and impending Trump administration decisions on immigration, tariffs, taxes, and other topics that could prove disruptive, the decision and Powell’s remarks put Fed policy in a holding pattern at a time when the U.S. economy appears to be both stable and extremely uncertain.

Powell said Fed officials are waiting to see what policies are implemented before assessing the effects on inflation, employment, and overall economic activity. Powell made this statement after their first policy meeting during President Donald Trump’s second term in office. Until data indicates either a renewed decline in inflation or rising risks to the jobs market, there is no reason to further adjust rates.

Inflation is still elevated
Inflation has mostly moved sideways in recent months after the Fed cut rates three times in the latter part of last year, but it is still high, the central bank’s policy-setting Federal Open Market Committee said in a statement following a unanimous decision to maintain the benchmark overnight interest rate in the current range of 4.25% to 4.50%. Compared to the 40-year highs seen in the wake of the epidemic, recent key inflation measures are still at least half a percentage point above the Fed’s objective.

Although they have put rates on hold while they wait for data to support their belief, Fed officials say they mainly think the process in reducing inflation will resume this year. The economy has been growing steadily ever since. According to the Fed’s statement, labor market conditions are still strong and the unemployment rate has been stable at a low level in recent months. It further stated that the Committee will carefully evaluate incoming data, the changing outlook, and the balance of risks when determining the scope and timing of further adjustments to the federal funds rate target range.

Investors anticipate the central bank will postpone rate cuts until June, according to short-term interest rate futures. U.S. bond yields barely changed, and U.S. stocks ended the day down but still above their lows. In comparison to a basket of currencies, the dollar (.DXY) remained stable.

Market experts stated Fed’s position to be Midly Hawkish
After cutting the benchmark rate by a whole percentage point in 2024, the Fed’s rate decision on Wednesday was highly anticipated. The central bank is debating how much more rate reductions could be necessary, with officials expecting to drop rates by maybe two quarter percentage points this year.

According to Brian Jacobsen, chief economist at Annex Wealth Management, the Fed appears to believe that the economy is trapped with a low unemployment rate and high inflation. He went on to say that the comment might be interpreted as being somewhat hawkish, implying that the economy could be shaken out of this equilibrium by a slight change in interest rates.

Market Action
Ahead of Powell’s news conference and the Fed policy statement, the S&P 500 lost momentum and then stagnated in Wednesday’s stock market activity. Fed policy came second; Alibaba (BABA), the most recent Chinese corporation to unveil an unexpectedly competitive AI model, caused Nvidia (NVDA) to plummet. According to a Bloomberg News story, the Trump administration may propose strengthening chip limits.

Markets are presently pricing in only 18% odds of a rate drop at the March 19 meeting, down from 31% on Tuesday, following the Fed meeting. The likelihood of a rate cut at the Fed meeting on May 7 dropped from 51% to 42%.

Markets predict a 73% chance of a rate decrease on June 18, which is not much different from Tuesday’s 75% possibility. That implies that the outlook hasn’t really changed. With a stable 39% chance of one rate cut or fewer, markets are still pointing toward 50 basis points in rate decreases for the year. Wednesday’s stock market action saw the S&P 500 drop 0.5%, closing about where it was before the Fed’s policy announcement at 2:00 p.m.