U.S. Indices ended Wednesday’s session with marginal gains, albeit with outperformance in the RUSSELL 2000, while geopolitics, Fed, and President Trump dominated the tape. The FOMC left rates unchanged, as expected, and left the 2025 dot plot unchanged, which saw stocks and Treasuries gain and the Dollar sell off. However, moves had started to pare as the hawkish composition of the 2025 dot plot was digested, while the 2026 and 2027 dots were revised up. Meanwhile, inflation projections were revised up, growth forecasts were revised down and unemployment forecasts were revised higher, likely to incorporate the expected impact of tariffs. The Committee said the uncertainty about the outlook has “diminished further but remains elevated”, a change from the prior “increased further”, and it also removed the line that “risks of higher unemployment and higher inflation have risen”. In Powell’s press conference, he largely echoed familiar remarks in that a patient and wait-and-see approach is appropriate, and that they would learn more over the summer to make smarter decisions, weighing on T-notes, stocks and supporting the Dollar. However, Trump managed to steal the limelight through the Fed and saw pronounced downside in the crude complex and upside in indices as he said he may meet with Iran, albeit anything can happen and no final decision has been made. Prior to this, oil was very choppy amid a deluge of Middle East updates – benchmarks saw peaks after Times of Israel said Defence Minister Katz said Israeli Air Force fighter jets just “destroyed the headquarters of the Iranian regime’s internal security, the main arm of the Iranian dictator’s oppression”, but then pared the gains, and much more, as President Trump was speaking with focus on lines that Iran wants to negotiate, nothing is too late and that Iran has reached out to the US. Elsewhere, sectors were largely in the red with only Tech, Utilities, and Real Estate in the green as Energy and Communications lagged. Treasuries in the end were largely flat, while the Dollar saw marginal gains – Antipodeans were the G10 outperformers, while Swiss Franc was the distinct laggard. US data saw Initial Jobless claims at 245k, in line with expectations, while housing data disappointed. In the US it is a market holiday on Thursday due to Juneteenth, while SNB, Norges, and Bank of England rate decisions are the highlights. The Federal Reserve left rates unchanged at 4.25-4.5%, as was widely expected, with the 2025 dot plot left unchanged at 3.9%, which signals 50bps of cuts this year, although the 2026 dot plot was revised higher to 3.6% from 3.4% and 2027 was revised up to 3.4% from 3.1%. However, there was some discourse over the number of cuts seen this year. Seven members see no cuts this year, versus four in March, while two see 25bps cuts, down from four in March, eight see 50bps (prev. nine), and two see 75bps of easing (unchanged from March). Highlighting the close proximity for the median dot, 9 members see FFR above median, 10 members see FFR at median or below. GDP forecasts were cut for both 2025 and 2026 to 1.4% (prev. 1.7%) and 1.6% (exp. 1.8%), respectively, while unemployment rate forecasts ticked higher across all time horizons ex. long-run. Headline and Core PCE inflation dots were also notably lifted with the 2025-end headline rate seen at 3.0% (prev. 2.7%) and 2026 at 2.4% (prev. 2.2%). In regard to the statement, the Committee said the uncertainty about the outlook has “diminished further but remains elevated”, a change from the prior “increased further”, and it also removed the stagflation warning line that “risks of higher unemployment and higher inflation have risen”. Stagflation risks remain given inflation forecasts were revised up, with growth forecasts revised down. Fed Chair Powell largely echoed familiar remarks in that a patient and wait-and-see approach is appropriate. He also told the usual line post SEPs that projections are subject to uncertainty, and are not a set plan. He recommended focusing on the near-term projections due to the difficulty of providing longer-term forecasts. Looking ahead, Fed Chair Powell said the time will come when they have more confidence, but he cannot say exactly when that will be. He stressed that as long as they have the kind of labour market they have, and inflation is coming down, the right thing to do is hold rates. Powell expects to learn a great deal more over the summer, adding they will make smarter decisions if they wait a “couple of months”. Powell noted inflation has been favourable over the last three months, but he expects to see more tariff impacts in the coming months and expects businesses to pass on costs to consumers, again stressing this is why the Fed need to be patient. Powell said they have to keep rates high to get inflation all the way down, and he described policy as “modestly restrictive”, noting it is not very restrictive. Powell in May said “policy is sort of modestly or moderately restrictive”. Building Permits fell by 2.0% to 1.393 million from 1.422 million, beneath the 1.428 million forecast. Housing Starts fell by 9.8% to 1.256 million from 1.392 million, beneath the 1.357 million forecast and even below the most pessimistic forecast of 1.3 million. Despite the big drop in Starts, analysts at Pantheon Macroeconomics highlight that the data is exceptionally volatile and thus take little signal from the report, with the drop mainly attributed to a 30% fall in multi-family starts, which will probably unwind over the next month or two. However, the desk highlights that Building Permits, which are less volatile, were also notably weak, hitting the lowest level since June 2020. Elsewhere, Gold again closed flat while Oil rose, closing Wednesday with a gain of 1.3%.
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