United States benchmark averages ended Wednesday's session (Thursday AEST) with mixed results after the Federal Reserve left its key interest rate unchanged, as widely expected.
The Dow Jones Industrial Average fell by 44.1 points, or 0.1%, to close at 42,171.7. The S&P 500 was virtually unchanged at 5,980.9, while the Nasdaq Composite ticked higher by 25.2 points, or 0.1%, to end at 19,546.3.
The central bank maintained the federal funds rate within the target range of 4.25% to 4.5%, consistent with market expectations.
However, the Fed also reiterated its forecast of two rate cuts by year-end, a move that initially cheered investors but was tempered by a downgrade in economic growth projections and an upward revision in inflation expectations.
According to the Summary of Economic Projections, policymakers now see U.S. gross domestic product (GDP) growth slowing to 1.4% in 2025, down from prior estimates, while the outlook for core inflation was raised to 3.1%.
This combination raised fears of a possible stagflation scenario - where economic growth stalls even as inflation remains elevated.
In his press conference following the announcement, Powell addressed the growing concern over the inflationary effects of recent tariffs implemented under President Donald Trump’s administration.
“GDP was reported to have edged down in the first quarter, reflecting swings in net exports that were driven by businesses bringing in imports ahead of potential tariffs.”
However, he noted that officials are “well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance".
Bond markets remained stable in the wake of the Fed's update. The yield on the 10-year Treasury note held at 4.391%, while the 2-year yield was steady at 3.939%.
