Federal Reserve policymakers are standing by their expectation of 50 basis points in rate cuts this year, as forecasts for unemployment and the inflation impact of Trump tariffs were both revised upward. The S&P 500 finished fractionally lower after Chairman Jerome Powell touted the resilience of the U.S. economy at his usual news conference, lifting the 10-year Treasury yield off its lows. Financial stocks such as JPMorgan Chase kept a positive tone after the Fed.
Wall Street saw zero chance of a rate cut, but Fed watchers had thought it was a close call whether Federal Open Market Committee members would pencil in just one quarter-point rate cut in 2025, or stick with the 50 basis points in cuts seen in March. Policymakers had turned more hawkish in the wake of President Trump's "Liberation Day" tariffs on April 2. While Trump put country tariffs excluding China above 10% on hold a week later, uncertainty still reigns about the eventual level of tariffs, as well as the amount of fiscal stimulus coming from the GOP fiscal package.
3:25 p.m. ET
Powell Wraps Up; Rate-Cut Odds Slip
The odds of a July 30 rate cut have now slipped to 11%. Sept. 17 rate-cut odds have eased to 63% and odds of 50 basis points in cuts backpedaled to 65.5% from 70% shortly after release of Fed projections at 2 p.m.
Powell repeatedly highlighted the resilience of the U.S. economy and how forecasts of a big slowdown keep getting proven wrong.
The upshot is that the Fed meeting really didn't change anything, and everything will depend on the economic data in coming months.
Stocks Waver On Powell, Trump's Iran 'Ideas'
3:19 p.m. ET
10-Year Treasury Yield Rises As Powell Speaks
The 10-year Treasury yield came off session lows around 4.35% with the Fed's two rate-cut outlook, which should support economic growth. Some of Powell's comments may have added to that rebound, including his belief that the current level of the federal funds rate is only "modestly" restrictive. That suggests the neutral level of interest rates may be higher than the Fed's long-term forecast of a 3% fed funds rate.
The S&P 500 is now fractionally higher, continuing to waver.
3:06 p.m. ET
Powell Says Fed Policy Is 'Modestly' Restrictive
Powell said the economy wouldn't be performing as it has if Fed policy were very restrictive. The neutral rate apparently isn't much lower than the current rate in his view.
The S&P 500, which initially added to gains as Powell spoke, is now trading about break-even.
2:55 p.m. ET
Powell Answers: Why Not Cut Rates?
"We have to be forward-looking," Powell said. Because the economy is still solid and the Fed expects a meaningful amount of inflation in the months head, the Fed can take more time before resuming rate cuts.
2:52 p.m. ET
Powell On Tariffs And Inflation
"We feel like we're going to learn a great deal more over the summer about tariffs," Powell said He added that the Fed has an estimate of where tariffs will end up, but that it's hard to predict how tariffs will pass through to prices.
2:48 p.m. ET
More Powell Comments On Job Market
Powell focused on "healthy levels" of unemployment and other metrics, as opposed to the very recent trend. While there are signs of cooling, there's "nothing that's troubling."
2:46 p.m. ET
Uncertainty 'Diminished But Still Elevated'
Powell said uncertainty about the economic outlook has diminished, but remains elevated. "Uncertainty really peaked in April. It's diminished but still elevated."
2:44 p.m. ET
S&P 500 Adds to Modest Gains
The S&P 500 rose 0.5% as Powell spoke, picking up slightly from shortly after the 2 p.m. ET Fed announcement.
2:42 p.m. ET
Fed Expects More Goods Inflation
Goods sold at retail may have been imported several months ago, before tariffs were imposed, Powell said. He also noted some categories where tariffs are already showing up, including audiovisual equipment. But Powell said it's "highly uncertain" when and how hard tariffs will hit prices.
2:40 p.m. ET
Powell Sees Solid Labor Market
Despite the Fed's median unemployment projection for 2025 rising to 4.5% from 4.4%, Powell indicated no hint that the labor market has turned cool in his brief overview.
The labor market is at or near full employment, he said.
2:39 p.m. ET
Powell: Fed Focused On Longer-Term Inflation Expectations
Fed Chair Powell said that the inflation effect of tariffs "could be short-lived." But he said a "more persistent" impact is possible, if inflation expectations become unanchored.
2:29 p.m. ET
Don't Bank On 50 Basis Points In Cuts
"With the economic outlook still very much shrouded in uncertainty, the Fed is unsure how things will pan out," wrote Seema Shah, chief global strategist at Principal Asset Management.
2:28 p.m. ET
Economist Sees Growing Labor Market 'Pressure'
"Indicators such as WARN layoff notices and the Challenger job cuts series suggest layoffs are starting to rise from a low base, while weak hiring means newly laid-off workers will find it increasingly difficult to get a new job quickly," wrote Oliver Allen, senior U.S. economist at Pantheon Macroeconomics. "The pressure on the labor market will grow as the tariff shock works its way through the economy."
2:25 p.m. ET
Fed Still Sees 'Solid' Labor Market
The Fed labor market assessment was unchanged in the latest policy statement, despite the four-week average of jobless claims rising to the highest level since August 2023. Other forward-looking labor market indicators also are flashing yellow.
2:20 p.m. ET
Fed Rate-Cut Odds Shift Slightly
The quarterly projections modestly raised market conviction that there will be a half-point in rate cuts this year. Odds of a rate cut at the July 30 meeting remained little changed at 14.5%, according to CME Group's FedWatch tool. Markets now see 70% odds of a rate cut by the Sept. 17 Fed meeting. For the full year, markets are pricing in 71% odds of 50 basis points in rate cuts, up from around 65% prior to the Fed projections.
2:15 p.m. ET
Fed Dot-Plot Divide
Fed policymakers were closely divided. Seven members of the Federal Open Market Committee (FOMC) expect zero rate cuts in 2025, while two think that a single 25-basis-point cut will be appropriate. The other 10 members think at least 50 basis points in cuts will be appropriate, with two of those leaning toward 75 basis points in cuts.
2:12 p.m. ET
GDP, Inflation Outlook
The Fed sees slower growth this year and next. For 2025, GDP is now seen growing 1.4% vs. the 1.7% projection in March. For 2026, the GDP growth forecast was trimmed to 1.6% from 1.8%.
The Fed's primary inflation rate, the core PCE price index, is expected to register 3.1% this year, higher than the 2.8% projection in March. Inflation is still seen coming off a boil in 2026, but only to 2.4%. That's vs. March's 2.2% forecast and the 2% target rate.
2:10 p.m. ET
S&P 500 Still Slightly Higher
The S&P 500 was up 0.2% shortly after the Fed announcement, slightly below the 2 p.m. ET levels.
The 10-year Treasury yield fell a little more to 4.36%.
2:09 a.m. ET
Fed Sees Higher Unemployment Rate
The new projections show the unemployment rate rising to 4.5% this year, up from the current 4.2% and higher than the 4.4% projection from March.
2:06 p.m. ET
Fed Rate-Cut Outlook
Policymakers stuck by their March outlook for a half-point in rate cuts, which would leave the Fed's key policy rate with a target range of 3.75% to 4%.The Fed did get a bit more hawkish in later years, penciling in just one rate cut in 2026 instead of two.
1:12 p.m. ET
Stocks Slightly Higher Heading Into Fed
The S&P 500 rose 0.3% in early afternoon trade less than an hour before the Fed announcement.
The 10-year Treasury yield dipped to 4.37% vs. Tuesday's close of 4.39%.
11:55 a.m. ET
Portfolio Management And Fed Announcements
Given the possibility for big market swings after Federal Reserve announcements, what actions should investors take to protect their portfolios?
A lot depends on individual investors' exposure levels and the type of stocks owned. If you have a large number of volatile stocks with high average true ranges, you might consider taking some profits, especially if you don't have much cushion in those names.
But much of this depends on your own investing style. If you're a swing trader, you might want to step back somewhat ahead of the Fed. If you're willing to risk big losses, you might stand pat.
Investors likely should be cautious about taking new positions on Fed day, though there were a number of names flashing buy signals Wednesday morning, including JPMorgan stock and Nintendo.
Stocks often whipsaw following the 2 p.m. Fed announcement and as Fed chair Jerome Powell holds his press conference at 2:30 p.m. ET. That tends to calm down as Powell finishes speaking, usually around 3:30 p.m. That doesn't offer a lot of time for investors to make new buys or sells.
Jobless Claims, Housing Starts
Following a bigger-than-expected drop in retail sales in May reported on Tuesday, Fed officials are seeing more soft economic data on Wednesday.
Initial claims for unemployment benefits dipped to 245,000 in the week through June 14 from an upwardly revised 250,000 the prior week. The four-week average of claims rose 4,750 to 245,500, the highest level since August 2023. Continuing claims, a reflection of the difficulty job losers have in finding new work, also held close to the prior week's three-and-a-half-year high, dipping 6,000 to 1.945 million.
Housing starts dived 9.8% in May, hitting a five-year low of 1.256 million at an annual rate. Building permits for future home construction fell 2% in May to an annual rate of 1.393 million, the lowest since June 2020.
Stock Market Forecast For The Next Six Months
"The Fed is in a pickle," wrote Comerica Bank chief economist Bill Adams. "Economic activity and hiring will be lackluster in the second quarter. On the other hand business surveys point to a big pickup in inflation on the way."
Adams added that the Israel-Iran war could raise inflation further and lower growth more via higher oil prices, "pulling the Fed even harder in opposite directions."
Fiscal policy, with the prospect of tax cuts adding to deficits, is yet another hurdle to Fed rate cuts, he said.
Fed Meeting Expectations
"Our baseline is that the median dot only shows one rate cut this year, though we admit it is a close call," wrote Deutsche Bank's U.S. economics team.
Deutsche Bank came down on the side of more hawkish rate projections, partly because "the recent spike in oil prices in response to tensions in the Mideast should leave the Fed even more vigilant around inflation expectations."
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The March dot-plot — with each dot representing the view of one FOMC member — showed that four members of the policy-setting committee expected no rate cuts in 2025 and another four expected just 25 basis points in cuts. The other 11 policymakers expected at least 50 basis points in rate cuts.
"The median was just two votes from flipping to a 25 (basis points) easing" from 50 basis points, wrote Samuel Tombs, Pantheon Macroeconomics chief U.S. economist. "With most members saying recently they want to see how the tariff shock begins to play out, we think the median participant will envisage easing by just 25 (basis points) this year."
Labor Market Commentary Will Be Key
The Fed has put rate cuts on pause this year, keeping rates in restrictive territory, as the risk of higher inflation, which argues for higher rates, balances the risk of higher unemployment, which would argue for lower rates.
With inflation running above target and an expectation that it will keep moving higher, Powell made clear that the Fed won't act preemptively to avoid a rise in unemployment. However, once the labor market has turned cold, the case for rate cuts will strengthen, and signs are growing that the time is drawing near.
While the May jobs report showed a respectable 139,000 gain in nonfarm payrolls, job gains for March and April were revised down a combined 95,000. The household survey, though it comes with a higher margin of error, showed the ranks of the employed tumbling by 696,000.
The more-timely jobless claims data points to further weakness.
Powell will elaborate on his view of the job market at his 2:30 p.m. ET news conference on Wednesday, but markets will take their cue from the 2 p.m. policy statement. Any softening of the assessment that "labor market conditions remain solid" would provoke a market reaction, with bond yields falling and the S&P 500 likely rising.
Market Expectations For Fed Rate Cuts
Ahead of today's Fed meeting, markets are pricing in virtually zero odds of a rate cut and only 14.5% odds of a rate cut by the July 30 meeting, according to CME Group's FedWatch tool. Odds of a rate cut rise to 63% for the Sept. 17 Fed meeting.
For the full year, markets see 64% odds of at least 50 basis points in rate cuts, which would lower the Fed's key rate to a range of 3.75% to 4%.
S&P 500
The S&P 500 is rising 0.4% in Wednesday morning stock market action, helped by a reversal in oil prices amid shifting expectations of how the Israel-Iran conflict will play out. On Tuesday, the S&P 500 fell 0.8% amid concern that escalation could lead to a further jump in oil prices.
The S&P 500 finished 2.6% off its all-time closing high on Feb. 19.
Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.
