The Federal Reserve kept interest rates steady on Wednesday but signaled that two rate cuts are still possible in 2025. Following the announcement, the Dow Jones Industrial Average closed nearly 400 points higher, with the S&P 500 and Nasdaq Composite also posting significant gains. In a press conference, Federal Reserve Chair Jerome Powell acknowledged increased uncertainty around the economic outlook but emphasized the economy’s overall strength.
He noted that labor market conditions remain solid, and inflation has moved closer to the Fed’s 2% long-term goal. Powell’s comments reassured investors and the prospect of future rate cuts was well-received. Michael Green, chief strategist at Simplify Asset Management, remarked, “The information that came across was almost exactly what people had expected.”
Cyclical sectors, such as financials, industrials, and energy, experienced gains following Powell’s positive economic assessment.
Fed’s steady rates boost stocks
Small-cap stocks also rallied, with the Russell 2000 Index rising 1.7%. However, some concerns were raised about the potential for stagflation as central bankers navigate a “policy fog” period ahead of U.S. tariff effects.
Jeffrey Roach, LPL chief economist, warned, “As growth prospects falter and inflation remains sticky, we should expect investors to get more worried about stagflation.”
The Federal Reserve’s FOMC statement, released earlier in the day, highlighted the Committee’s commitment to achieving maximum employment and maintaining inflation at the 2% target. The Committee decided to maintain the target range for the federal funds rate at 4.25% to 4.5% and will continue to evaluate incoming data and the evolving outlook. Wall Street analysts had mixed reactions to the Fed’s decision and Powell’s press conference.
Some expressed skepticism about using the term “transitory” to describe inflation. In contrast, others emphasized the importance of focusing on fundamentals, such as earnings and long-term interest rates, rather than solely on the Fed’s short-term actions. As investors continue to monitor economic indicators and potential policy changes, the market remains cautious yet hopeful following the Fed’s announcement and the subsequent rally in major indexes.
