The Federal Reserve kept interest rates steady Wednesday, marking the first pause in rate cuts since September. U.S. stock indexes slipped slightly following the widely expected decision, with the S&P 500 falling 0.5%, the Dow Jones Industrial Average dipping 137 points (0.3%), and the Nasdaq composite falling 0.5%. Fed Chair Jerome Powell said the central bank could cut rates if inflation slows further or if the job market weakens suddenly.
“Right now, we don’t see that, and we see things as in a really good place for policy and for the economy, and so we feel like we don’t need to be in a hurry to make any adjustments,” he stated. The reaction in the bond market was relatively muted, suggesting rates may stay on hold for a while following a swift drop at the end of 2024. Lower rates could help the economy by making borrowing cheaper for companies, but they could also fuel inflation.
Wall Street would generally prefer lower interest rates, but “we would continue to focus on why the Fed won’t cut anytime soon, specifically a strong economy and labor market, which bodes well for solid corporate earnings growth,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute.
Fed’s rate pause impacts markets
Wednesday’s calm movements provided some respite from recent large swings driven by doubts about AI development.
Nvidia, a prominent AI company, saw its stock fall 4% on Wednesday after a 17% plunge on Monday and a 9% jump on Tuesday. Nvidia alone accounted for a substantial portion of the S&P 500’s gains last year, and its recent volatility has greatly influenced the index. In other news, Chipotle rose 8.1% after delivering better-than-expected profits, while T-Mobile US rallied 6.3% after exceeding Wall Street’s expectations for both profit and revenue.
Brinker International, the company behind Chili’s restaurants, jumped 16.3% after reporting strong results. On the losing end, Danaher fell 9.7% after the life sciences and diagnostics company reported quarterly results that missed analysts’ expectations. In stock markets abroad, European indexes were mixed, with ASML’s stock jumping 5.6% in Amsterdam after announcing strong revenue due to high demand for its advanced chipmaking tools.
In Asia, Japan’s Nikkei 225 rose 1% amid holiday closures in many markets.
