The dollar weakened slightly after the US Federal Reserve (Fed) ended its two-day policy meeting by keeping interest rates unchanged and releasing its accompanying Statement of Policy and Summary of Economic Outlook (SEP).
The S&P 500 and Nasdaq ended with big gains, while the blue-chip Dow fell slightly toward the close.
The more hawkish SEP appears to be at odds with the Labor Department’s closely watched CPI report released earlier in the day, which showed that annual growth in core prices had slowed to its slowest in more than three years.
“It’s a little disappointing to see this hawkish stance on what is probably the weakest inflation report in years,” said Ross Mayfield, an investment strategy analyst at Baird in Louisville, Kentucky. “The market will be a little confused by how hawkish the Fed is, given not just this morning’s data but last week’s data as well.” In a press conference after the decision, Fed Chairman Jerome Powell acknowledged that inflation has eased significantly but remains too high, and the slower-than-expected move to bring inflation down to the central bank’s 2% target postponed cut expectations. “I think the main takeaway is that the market probably would have expected the Fed to go from three rate cuts to two,” Mayfield added. “In fact, they went from three rate cuts to one rate cut, which is a hawkish surprise.” Still, financial markets are pricing in a 61.5% chance of a 25-basis-point cut in September, according to CME’s FedWatch tool, up from 46.8% on Tuesday.
The Dow Jones Industrial Average fell 35.21 points, or 0.09%, to 38,712.21, the S&P 500 rose 45.71 points, or 0.85%, to 5,421.03 and the Nasdaq Composite added 264.89 points, or 1.53%, to 17,608.44.
European stocks closed significantly higher after the CPI release and ahead of the Fed’s interest rate decision.
The pan-European STOXX 600 index rose 1.08%, while MSCI’s index of global shares added 0.86%.
Emerging market stocks rose 0.39%. The MSCI composite index of Asia Pacific shares ex-Japan closed up 0.5% while Japan’s Nikkei average fell 0.66%.
Treasury yields fell after the data was released but recovered slightly after September yields were released.
The benchmark 10-year U.S. Treasury note rose 19/32 to yield 4.3277%, down from Tuesday’s close of 4.402%.
The 30-year note rose 27/32 to yield 4.4846%, up from Tuesday’s close of 4.535%.
The dollar pared losses against a basket of global currencies after the central bank cut its forecast for interest rate cuts in 2024.
The dollar index was down 0.46% and the euro rose 0.61% to $1.0804.
The Japanese yen rose 0.14% against the US dollar to 156.88 yen, while the pound rose 0.42% from the previous day to close at 1.2793 dollars.
Oil prices closed higher, supported by rising tensions in the Middle East and expectations of a drawdown in global inventories later this year.
US crude oil rose 0.77% to close at $78.50 a barrel, while Brent crude rose 0.83% to close at $82.60.
Gold rose but lost some luster following the Fed’s revised economic forecasts.
Spot gold rose 0.2% to $2,320.76 an ounce.
