The Federal Reserve maintained its restrictive interest-rate setting on Wednesday as two policymakers registered dissents. The S&P 500 turned lower as Chairman Jerome Powell continued to signal no rush to cut rates. Investors also are gearing up for earnings from Microsoft and Meta Platforms after the close.
The Fed policy update followed a stronger-than-expected Q2 GDP report, though the data wasn't as strong below the surface and core inflation slightly topped forecasts. Earlier on Wednesday, ADP's employment report showed private-sector hiring improved in July.
3:52 p.m. ET
Reaction To Fed, 'Hawkish' Powell
"Despite the hawkish tinge to some of Powell's comments, I don't think the mindset of most committee members has changed," wrote Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management. "This is still a data-dependent Fed, and we expect the data to tell them to deliver a cut later this year as unemployment rises modestly and services inflation continues to cool."
3:32 p.m. ET
Fed Rate-Cut Odds Sink
After Fed Chair Powell wrapped up his news conference, markets are pricing in 48% odds of a rate cut at the Sept. 17 meeting, down from 65% on Tuesday.
Powell stressed that the outcome of the September meeting will depend largely on the two monthly jobs reports and two months of inflation data that the Fed will have in hand by then.
The Fed chief laid out two ways of thinking about current policy that amount to something of a framework. In discussing the Fed's two mandates, price stability (i.e. 2% inflation) and full employment (which is a moving target), Powell said that with inflation somewhat elevated and the labor market at full employment, it makes sense for policy to be modestly restrictive, which it is, in his view.
These Are The 5 Best Stocks To Buy Now Or Get Ready To
For now, the risk to the Fed's inflation mandate (i.e. too-high inflation) is greater than the risk to the full employment mandate (i.e. a labor market weakening that raises the unemployment rate), Powell said. Once those risks become balanced, with the risk of too-high inflation easing or the the risk to full employment growing, the Fed will move to lower rates to a neutral level.
Though Powell did say that he sees some downside risk to the labor market, he said the most important number to watch is the unemployment rate. His point was that the U.S. economy now needs to create fewer jobs per month, since the labor force is growing slowly.
3:04 p.m. ET
What Will It Take For A Fed Cut?
"We have two-sided risk — risk to both of our goals," Powell said. Once the risks are balanced, the Fed will move closer to neutral, he said. The implication is that inflation is a bigger risk than labor-market weakness at the moment.
Microsoft, Meta Soar On Earnings After Stocks Mixed On Powell
3 p.m. ET
S&P 500 Turns Lower
The S&P 500 fell 0.4% at 3 p.m. ET as Powell continued to speak, reversing from a slim gain. The Dow Jones lost 0.6% and the Nasdaq sank 0.3%.
2:53 p.m. ET
Powell On One Big Beautiful Bill
"The biggest part of the bill was making permanent existing law," Powell said. "There should be some stimulative effect," but not significant.
2:52 p.m. ET.
Stocks Mixed On Fed, Powell
The S&P 500 is flat as Powell continued speaking. That's down from a 0.2% gain from before the start of his 2:30 p.m. ET press conference and +0.2% before the 2 p.m. ET Fed announcement. The Dow Jones is off 0.2% while the Nasdaq composite is up 0.3%.
2:49 p.m. ET
Fed Policy Setting
Powell explained that most policymakers see inflation as somewhat elevated and the labor market as being consistent with full employment. Given the Fed's mandate of price stability and full employment, that combination indicates policy should be modestly restrictive.
2:44 p.m. ET
Powell: 'Downside Risk To The Labor Market'
"Both demand and supply for workers is coming down at the same pace," Powell said. However, "We do see downside risk to the labor market."
Powell highlighted the importance of the unemployment rate. He said that the breakeven level of monthly job growth that matches growth of the labor force has come down.
2:43 p.m. ET
Powell On Trump Tariffs
"Our estimates of the effective level of tariffs is not moving around much," Powell said. But "it feels like there's much more to come," he added. His answer was in response to a question as to why the Fed still saw economic uncertainty as elevated.
2:39 p.m. ET
Powell: Rates Not Too Restrictive
"The economy is not performing as though restrictive policy is holding it back," Powell said, in the view of most committee members. He characterized current policy as "modestly restrictive."
2:35 p.m. ET
Powell: Easing Services Inflation
"Services inflation has continued to ease, while increased tariffs are pushing up the prices of some categories of goods."
Overall effects of tariffs "remain to be seen." Powell said the Fed is positioning policy for any scenario.
2:29 p.m. ET
White House Confirms 50% Tariffs On Brazil
The White House announced that President Trump signed an executive order implementing a 50% tariff on imports from Brazil. A fact sheet justifies the action based on Brazil's policies harming U.S. companies, free speech rights and U.S. foreign policy. The prosecution of former Brazilian President Jair Bolsonaro is also cited.
Meanwhile, U.S. copper futures plunged more than 15% as Trump exempted refined copper from a 50% tariff on copper goods.
2:20 p.m. ET
Fed Dissenters
The policy statement notes that two members of the Fed Board of Governors, Christopher Waller and Michelle Bowman, both preferred to lower the federal funds target rate by 25 basis points. Trump appointed both of them to the Fed.
Bowman noted recently that she would support resuming rate cuts as long as services inflation remained in check, even as tariffs put some upward pressure on goods prices.
2:15 p.m. ET
Inflation And Jobs Data Loom Large
The Fed's primary inflation rate, the core PCE price index, will get a June update on Thursday morning, followed by the July jobs report on Friday morning. GDP data earlier Wednesday showed that core PCE inflation ran at a 2.5% annualized rate in Q2, a bit higher than expected. ADP jobs data also showed that private-sector hiring firmed up, with the reported 104,000 July gain topping 75,000 estimates. However, ADP data should always be taken with a big grain of salt.
2:12 p.m. ET
Fed: Growth Has 'Moderated'
Despite the stronger than expected headline growth rate of 3% for the Q2 GDP report, the Fed statement said that "recent indictors suggest that growth of economic activity moderated in the first half of the year."
2:06 p.m. ET
Uncertainty Still High
The Fed policy statement characterized uncertainty about the economic outlook as elevated. That's despite a spate of deals, including with the European Union and Japan, over Trump tariffs, which avoided a worst-case scenario. Passage of the One Big Beautiful Bill Act also fills in key details about where fiscal policy is headed.
2:03 p.m. ET
Stocks Still Slightly Higher After Fed Announcement
The S&P 500 rose 0.2% after the 2 p.m. ET announcement. It was up 0.25% just before the release. Stocks often gyrate following the Fed announcement and especially after Fed chief Jerome Powell begins speaking.
2:01 p.m. ET
Fed Holds Steady, 2 Dissents
The Fed held its key policy rate unchanged, with a target range of 4.25% to 4.5%. Two voting members registered dissents, the most since 1993, according to Deutsche Bank economists.
The Fed policy statement continued to characterize inflation as "somewhat elevated," while repeating its prior assessment that labor market conditions "remain solid."
10:18 a.m. ET
S&P 500 Rises Slightly
The S&P 500 rose 0.1% in Wednesday's morning trade, with the 10-year Treasury yield up four basis points to 4.37%.
9:23 a.m. ET
S&P 500 Futures Steady As Dollar Rises Ahead Of Fed
S&P 500 futures remained a slim 0.1% higher early Wednesday. Meanwhile the U.S. dollar index rose 0.6% to 99.27, reaching its highest level since late May against a basket of advanced-economy currencies.
The 10-year Treasury yield rose four basis points to 4.37%, retracing about half of Tuesday's drop.
Odds of a Fed rate cut at the Sept. 17 meeting slipped to 60% from 66% amid data showing firmer core inflation and job growth.
9:15 a.m. ET
GDP Report Reflects 'Lower Gear'
"Beneath the topline figure, the economy is switching to a lower gear but not going in reverse," wrote Bernard Yaros, lead U.S. economist at Oxford Economics.
Yaros expects consumer spending to remain subdued amid the "real income shock from tariffs."
He also highlighted a 10.3% dive in private investment in structures amid policy uncertainty and an 11.2% plunge in federal government nondefense purchases.
8:55 a.m. ET
Imports Dive, Exports Slip
The headline strength in GDP came as imports plunged at 30.3%, after Q1's 37.9% spike ahead of Trump tariffs. Exports slipped 1.8%, after a 0.4% rise in Q1. Goods exports fell 5%, while services exports rose 4.4%.
Imports "subtract" from GDP from an accounting perspective, but bolster other categories, including inventories. Inventories tumbled in Q2 as business drew down pre-tariff imports.
8:50 a.m. ET
GDP Report Shows Stubborn Inflation
The Fed's primary inflation gauge, the core PCE price index, rose at a 2.5% annual rate in Q2, after rising at a 3.5% rate in Q1. Pantheon Macroeconomics notes that the consensus forecast was for 2.3% annualized core inflation in Q2.
June inflation data will be out on Thursday along with personal income and outlays data.
Pantheon senior U.S. economist Oliver Allen wrote that higher-than-expected core inflation will probably include upward revisions to April and May data. If not, then Thursday's report could show a 0.46% monthly rise in the core PCE price index for June.
8:47 a.m. ET
Fed Rate-Cut Odds Slip A Bit
After this morning's economic news, including better-than-expected private-sector job growth, markets are pricing in 64% odds of a rate cut at the Sept. 17 Fed meeting, down from 66% ahead of the data.
S&P 500 futures rose 0.1%.
8:45 a.m. ET
Treasury Refunding: Status Quo For Now?
The 10-year Treasury yield rose 3 basis points following the morning's economic news, including Treasury refunding details. Despite speculation that the Treasury Department might shift to short-term funding to bring down long-term bond yields and mortgage rates, the borrowing plan looks pretty much steady.
8:35 a.m. ET
GDP Mixed Below Surface
Overall 3% GDP growth in Q2 topped 2.5% estimates and followed a 0.5% decline in Q1. However, moderate 1.4% growth in personal consumption expenditures matched forecasts.
Final sales to private domestic purchasers, which strips out shifts in trade, rose a modest 1.2%, down from 1.9% in Q1 and 2.9% in Q4. That's the smallest such gain since 2022.
8:25 a.m. ET
ADP Shows 104,000 Job Gain
Private-sector employers added 104,000 jobs in July, above the 75,000 consensus forecast, according to Econoday.
June's initially reported 33,000 contraction in private payrolls was revised to -23,000.
ADP has a spotty track record for predicting official Bureau of Labor Statistics data.
ADP May Set Tone For S&P 500, Bond Market
Probably the only bit of economic news that might pause the bull market rally would be a strong reading from ADP on private-sector job gains for July. That might challenge efforts by Treasury to bring down the 10-year yield, while denting the case for a September Fed rate cut — at least until Friday's official jobs report is out.
Economists expect the ADP employment report to show that private-sector employers added 75,000 payroll jobs in July, following a 33,000 decline in June, according to Econoday.
However, ADP's payroll estimate wasn't a good predictor of the official Bureau of Labor Statistics report, which showed an addition of 74,000 private-sector jobs in June.
GDP Expected To Bounce
Forecasters expect that GDP grew 2.5% in Q2, following the first quarter's 0.5% contraction. However, the headline GDP numbers have been skewed by a surge in imports to get ahead of Trump tariffs.
Pay attention to final sales to domestic purchasers, which grew a respectable 1.9% in Q1.
Fed To Weigh In On Trump Tariffs
Fed Chairman Jerome Powell turned more hawkish following President Donald Trump's April 2 "Liberation Day" reciprocal tariff announcement, and remained so after much of those tariff hikes were paused. He confirmed in a July 1 appearance that the Fed would have already cut this year if not for Trump tariffs.
Yet now that the actual level of Trump tariffs announced in a series of deals with the EU, Japan and others has assuaged concerns about a more pronounced jump in inflation, Powell may be ready to let down his guard somewhat.
As Trump grows increasingly impatient for the Fed to resume rate cuts, economists expect that a couple of voting members on the Fed's Federal Open Market Committee (FOMC) will register their dissent from the near-certain decision to hold rates steady. Deutsche Bank economists note that it would be the first time since 1993 that there was more than one dissenting vote.
Markets are pricing in 2% odds of a rate cut on Wednesday, according to CME Group's FedWatch tool. But rate-cut odds jump to 66% for the Sept. 17 meeting. By then, the Fed will have July and August inflation data in hand, as well as July and August jobs data.
