U.S. Indexes ended mixed on Wednesday, with the tech-heavy Nasdaq 100 the sole gainer, while the small-cap Russell 2000 lagged amid a deluge of earnings, US data, Middle East rhetoric and the latest FOMC meeting. The Fed held rates, as expected, with Miran the only dovish dissenter, opting for a 25bps rate cut. Three regional Fed Presidents, Hammack, Logan and Kashkari, dissented over maintaining the easing bias in the statement. Overall, the statement was hawkish, with a key shift in policy language on inflation as the line that it “remains somewhat elevated” was replaced with “elevated”. The Fed explicitly attributed this to the recent surge in global energy prices, a hawkish tilt suggesting the Committee views the oil shock as more than purely transitory. In Chair Powell’s press conference, he was pressed heavily on Fed independence and governance and said he would stay on as Governor until the Dept of Justice probe had ended. Earlier, US data showed a strong Durable Goods print, the advance goods trade deficit widened more than expected, and Housing data was mixed. Sectors were broadly lower, with energy the clear gainer, buoyed by notable gains in crude benchmarks as the US and Iran seemed no closer to any breakthrough, with punchy rhetoric from both sides on Wednesday. Treasuries were lower across the curve, while precious metals were in the red, with Spot Silver underperforming Gold. The Dollar gained, with the Antipodeans the clear laggards after Australian inflation was softer than expected and trimmed bets for hikes at next week’s RBA meeting. USD/CAD rose after the Bank of Canada held Interest Rates, as expected, and acknowledged it would look through the war’s immediate impact on inflation. Ahead, there more central bank rate announcements, US data and earnings on Thursday. The updated FOMC Statement and vote split was hawkish. The most striking development in the statement was the dissent; as anticipated, Governor Miran again voted for a 25bps rate cut; however, three additional dissenters (Hammack, Kashkari, and Logan) voted against the inclusion of any easing bias in the statement. Another key shift in the policy language was on inflation, with the line that inflation “remains somewhat elevated” being replaced with “elevated”, with the Fed explicitly attributing this to the recent surge in global energy prices, a hawkish tilt suggesting the Committee views the oil shock as more than purely transitory. On the Middle East, the Statement drops the prior “uncertain implications” framing, instead stating directly that developments there are “contributing to a high level of uncertainty”. Meanwhile, growth and labour market language was largely unchanged; activity continues to expand “at a solid pace” and unemployment remains “little changed.” At his last post-meeting press conference as Fed Chair, Powell was asked a lot about Fed governance and independence. He said he will remain as Governor after his Chair term expires in May until the DoJ matter is “well and truly over”, framing the decision around unprecedented legal and political attacks on the Fed rather than policy opposition to Kevin Warsh. He said he would not act as a ‘shadow Fed Chair’, expects a normal transition, and described Warsh as qualified, but repeatedly warned that Fed independence is at risk and that the Committee is concerned that political pressure may continue. On policy, Powell repeatedly said policy is in a “good place” to wait and see but acknowledged that the Committee is moving closer to dropping its easing bias, with more officials now viewing a hike as likely as a cut. He stressed no one is calling for a hike right now; however, analysts said that the threshold for cuts has risen: the Fed wants to see more progress on tariffs and energy prices before easing, while he noted that core inflation risks are “real”. He noted that in addition to the three dissenters, there were non-voters who would have preferred to move away from easing bias but still supported the rate decision. On inflation, Powell said the Fed had long assumed tariffs would be a one-off, and is already looking through that shock, but was more cautious on energy, noting prices may not have peaked and could feed into gas, airfares and petroleum-linked services. He again said that the labour market was not a source of inflation, describing it as cooling, with low hiring and low quits, while growth and consumer spending remain resilient for now. In terms of the policy outlook, analysts said the bar for September cuts is now higher, and Powell suggested that the next 30-60 days are key for whether guidance shifts. Building Permits for March fell 10.8% to 1.372 million (exp. 1.39 million) from 1.538 million, with single-family authorisations down 3.8%, while units in buildings with five units or more were at a rate of 427k. Housing Starts rose 10.8% to 1.502 million from 1.356 million, above the consensus of 1.40 million. Single-family housing starts increased 9.7% to 1.032 million, and the March rate for units in buildings with five units or more was 446k. Housing Starts were stronger than expected, but Oxford Economics notes based on Building Permits, the more forward-looking indicator, it does not expect the March pace of starts to be repeated in the coming months. The consultancy added that for housing starts to improve on a sustained basis, homebuilders will need to reduce their existing inventory of completed homes for sale. Mortgage rates have retraced about half of the rise that followed the start of the war with Iran, which should support some sales, but it does not expect rates to fall further any time soon. The Bank of Canada held rates at 2.25% as expected, keeping its options open amid the Middle-East conflict. The central bank reiterated it is looking through the war’s immediate impact on inflation, but will not let higher energy prices become persistent inflation. As expected, the BoC raised its CPI inflation outlook, with 2026 lifted to 2.3% (prev. 2.0%), but unchanged at 2.1% for 2027. GDP growth projections were raised despite the ongoing war, 1.2% for 2026 (prev. 1.1%) and 1.6% for 2027 (prev. 1.5%). The central bank noted that since Canada is a large net exporter of oil, higher oil prices increase national income even as consumers are squeezed by higher gasoline prices. Ahead, it guided that changes in the policy rate are expected to be small as the economy evolves broadly in line with the base case. On trade, in the event the US imposes significant new trade restrictions on Canada, the BoC said they may need to cut the policy rate further to support economic growth. The BoC maintained its neutral rate estimate range of 2.25-3.25%. A very much expected decision, statement, and MPR from the BoC, leaving money markets slightly paring hawkish bets as any clear guidance towards hiking was absent. Elsewhere, Oil surged a further 7% while Gold continued Tuesday’s move lower with a 1.2% fall yesterday.
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