US stocks whipsawed on Wednesday after the Federal Reserve held interest rates steady following 10 consecutive increases.
Wall Street’s benchmark S&P 500 closed out a choppy session with a 0.1 per cent gain, while the tech-heavy Nasdaq Composite added 0.4 per cent. The Russell 2000 gauge, whose constituents are more sensitive to perceptions about the US economy, ended the day 1.2 per cent lower.
The moves came after the US central bank announced a widely-anticipated decision to keep the federal funds rate steady, maintaining its target range of between 5 per cent to 5.25 per cent.
The pause follows a streak of consecutive rate rises from a base of near-zero over 14 months, as the Fed took aggressive action to tackle persistently high inflation.
But the Fed’s decision was published alongside an updated “dot plot” that gathers officials’ forecasts for the fed funds rate until the end of 2025, which indicated that most policymakers are projecting two more quarter-point increases this year.
In government debt markets, the policy-sensitive two-year Treasury yield steadied at 4.7 per cent. It had earlier advanced more than 0.1 percentage points just after the central bank’s policy announcement, reaching its highest level since mid-March.
The yield on the benchmark 10-year note slipped 0.04 percentage points lower to 3.8 per cent. Yields move inversely to prices.
Data released earlier on Wednesday showed that US producer prices rose 1.1 per cent year on year in May, less than economists had expected and the slowest increase in more than two years.
“Pausing at this juncture is a wise decision by the Fed,” said Matthew Morgan, head of fixed income at Jupiter Asset Management, “given inflation is slowing, and the 5 per cent of rate hikes already lumped on to the economy at the fastest pace for four decades is being felt.
“The true impact of those hikes hasn’t yet fed through, but we are already seeing pockets of fragility.”
The dollar was down 0.2 per cent against a basket of six other currencies following the Fed’s decision, trimming a more pronounced decline earlier in the day that had taken the greenback to its lowest level in four weeks.
On Tuesday, the latest US consumer price index reading showed that headline inflation had also slowed — with a year-on-year rise of 4 per cent in May, down from almost 5 per cent in April.
But stronger-than-expected employment data for May, released earlier this month, signalled a still-hot jobs market.
“Between the labour market and the fact that core inflation has remained stuck, inflation is going to be above target for a long time,” said Sonal Desai, chief investment officer for Franklin Templeton Fixed Income.
“I don’t think there’s enough in the inflation data to warrant an end to the rate hiking cycle.”
Elsewhere in equity markets, Europe’s region-wide Stoxx 600 and Germany’s Dax both rose 0.5 per cent.
Sterling climbed to its highest level against the dollar since April 2022 after strong UK gross domestic product and labour data this week boosted chances that the Bank of England would keep raising interest rates. The pound gained as much as 0.6 per cent, rising to $1.2698, according to Refinitiv data, before paring its advance to trade up 0.4 per cent on the day.
Asian equities were mixed, with Japan’s benchmark Topix index rising 1.3 per cent, while China’s CSI 300 index was flat and Hong Kong’s Hang Seng index lost 0.6 per cent.
Shares in China were buoyed earlier in the day by growing hopes for policy support from the People’s Bank of China after the central bank lowered its short-term lending rate on Tuesday for the first time in nine months.
Analysts at Goldman Sachs said the move “could suggest the start of additional monetary policy easing” and expected the PBoC to cut its one-year medium-term lending facility rate on Thursday by 0.1 percentage points. The rate serves as the floor for China’s benchmark prime loan rate.
Additional reporting by Kate Duguid
