U.S. Equity Markets were choppy on Wednesday and ultimately saw two-way action on the Federal Reserve meeting. In an immediate reaction to the Fed holding rates at 4.25-4.50%, as expected, there was a hawkish reaction to the accompanying statement whereby it removed reference that “inflation has made progress toward the Committee’s 2 percent objective”. However, in Chair Powell’s Q&A he said it was a language clean-up, as opposed to anything fundamental, which saw a dovish reversal to the initial moves. Elsewhere, Powell reiterated the Fed does not need to be in a hurry to adjust the policy stance, and stated assessment of policy stance has not changed but policy is meaningfully less restrictive than when they started cuts. The Dollar was ultimately flat, albeit choppy while both the Australian Dollar and Swiss Franc underperformed and the Japanese Yen outperformed. The Canadian Dollar saw fleeting strength in wake of the Bank of Canada removal of guidance, but swiftly pared with focus on trade and Trump tariffs. The Treasury curve flattened while T-Notes chopped to the aforementioned Fed statement and presser. The crude complex was lower and sold off after US Commerce Secretary nominee Lutnick said tariffs on Canada are to address fentanyl entering the US, and if Canada addresses the flow of fentanyl into the US there will be no tariffs. Sectors saw downside bias, with Real Estate and Technology the laggards with Nvidia closing down 4%, and continues to be weighed on by DeepSeek newsflow. The Federal Reserve held rates between 4.25-4.50%, as expected, in a unanimous decision while it made hawkish adjustments to its description of the economy after recent data. It maintained language that “inflation remains somewhat elevated”, but removed reference to “inflation has made progress toward the Committee’s 2 percent objective”. Regarding the labour market, the statement noted the “unemployment rate has stabilised at a low level in recent months, and labour market conditions remain solid”, against December’s “labour market conditions have generally eased, and the unemployment rate has moved up but remains low.” Elsewhere, the FOMC statement was largely unchanged, judging that risks to achieving its employment and inflation goals are “roughly in balance” and that “it is attentive to the risks to both sides of its dual mandate.” It also maintained its guidance in the statement, “In considering the extent and timing of additional adjustments… the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.” In reaction to the adjustments to the statement, a hawkish reaction was seen on the removal of the language that inflation has made progress towards target while noting the labour market has stabilised. In the post-meeting press conference, Chair Powell said that the Fed does not need to be in a hurry to adjust the policy stance and the central bank is not on a preset course, something he reiterated throughout the Q&A, even when asked about a March cut. When asked about removing reference to inflation progress in the statement, Powell said that it was a language clean-up and just used to shorten the sentence, which saw a notable dovish reversal in markets. Further, Powell said the Fed got two good readings in a row and wants to see further progress on inflation, but he thinks the Fed can see the pathway for that to happen, particularly as we see shelter inflation coming down pretty steadily. Powell did note, “We seem to be set up for further progress [on inflation]”, however, being set up for further progress is one thing and “Having it is another.” On forecasts, the Chair noted they are highly uncertain, and currently some elevated uncertainty because of significant policy shifts, but that should be passing. The Chair later added that assessment of policy stance has not changed but policy is meaningfully less restrictive than when they started cuts. Powell once again highlighted data dependence and said the Fed is looking at data to guide them. He added that right now, he sees things in a really good place for the policy and economy, and reiterated he does not need to be in a hurry to make any adjustments, something he said a couple of times throughout the address. Regarding the neutral rate, he noted the Fed is currently above everyone on the committee’s estimates on the long-run neutral rate (top-estimate 3.9% in Dec. SEPs), and would say the Fed is meaningfully above the neutral rate. When asked about ending QT, stated most recent data suggests reserves are still abundant, Fed intends to reduce balance sheet size, closely monitoring signals on reserves. On President Trump policies, Powell said the Fed is in the mode of waiting to see what policies are enacted and does not know what will happen with fiscal, regulatory, tariffs, and immigration policy. Elsewhere,Oil closed lower by 1.5% while Gold was flat%.
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