U.S. markets rallied on Wednesday after the Federal Reserve held interest rates steady at 4.25% – 4.5%, with the Nasdaq Composite jumping 1.41%. While Powell avoided committing to rate cuts, the Fed’s projections still suggest two by year-end. Traders, ever eager to get ahead of policy shifts, took this as a green light. However, the underlying data paints a more complicated picture, with GDP growth revised downward, unemployment ticking up, and inflation still above target at 2.7%. The market may be celebrating now, but the road ahead isn’t necessarily smooth.
Nasdaq Jumps as Markets Bet on Fed Flexibility
The Nasdaq had a field day on Wednesday, surging 1.41% after the Federal Reserve opted to keep interest rates steady at 4.25 – 4.5%. Investors, evidently relieved that the central bank didn’t spring any surprises, sent the index up 246.67 points to 17,750.79. The mood was bullish from the outset as Nasdaq 100 futures signalled early optimism, trading around 19,800 in pre-market hours, pricing in exactly this kind of Fed-friendly decision.
Post-announcement, futures trended higher, reaching an intraday high of 20,143 before settling at 19,943 — mirroring the broader rally in tech stocks.
The takeaway? The Fed isn’t budging for now, but markets are reading between the lines. In its latest Summary of Economic Projections, policymakers maintained their outlook for two quarter-point cuts by year-end, which would bring the target range down by 50 basis points. Powell, however, avoided making any promises. Instead, he stressed flexibility, saying the Fed is “well positioned to wait for greater clarity” before adjusting policy. That was enough for traders, who have a long history of jumping ahead of the Fed, to assume easing is still on the table.
But beneath the surface, the economic picture is shifting. GDP growth has been revised down to 1.7% from 2.1%, unemployment is expected to nudge up to 4.4%, and core PCE inflation is now projected at 2.7%. The market may be in a celebratory mood, but the Fed’s projections don’t exactly paint a smooth landing.
Powell’s Balancing Act: Waiting or Waffling?
Jerome Powell, ever the cautious communicator, stuck to the script, acknowledging elevated uncertainty due to import tariffs while keeping rate-cut timing deliberately vague. The Fed, he said, is “well positioned to wait for greater clarity”, emphasizing that further moves will depend on how inflation and growth evolve.
Markets initially took that as a dovish sign, but not everyone’s buying it. Traders have seen this before, a Fed that signals patience right up until the moment the data forces its hand. The revised projections assume inflation will ease while economic growth slows only modestly, but some analysts aren’t convinced. With core PCE inflation now forecasted at 2.7%, Powell’s confidence in a soft landing could prove optimistic. If inflation stays sticky, or if tariffs start squeezing corporate margins harder than expected, that “measured approach” could turn into a scramble.
One policy tweak that got traders’ attention? A slowdown in quantitative tightening. The Fed will now trim its Treasury roll-offs to $20 billion per month, effectively keeping more liquidity in the system. This aligns with its decision to slow the pace of balance sheet reduction starting in April. Markets liked that. Nasdaq 100 futures, which had hovered near 19,706 earlier in the day, surged post-announcement, reinforcing the bullish sentiment.
Source (Reuters)
Tech Stocks Lead the Charge, But Caution Lingers
The Nasdaq Composite’s rally, though strong, still leaves the index in correction territory, down 12.1% from its mid-December peak of 20,192. Earlier in the session, it hit an intraday high of 17,917, flirting with Monday’s top before pulling back slightly. Nasdaq 100 futures mirrored this movement, reaching an intraday high of 20,143 before closing at 19,943.
Leading the advance? Tech stocks, as usual. NVIDIA (NVDA) bounced back 0.7% in pre-market trading after a rough 3.4% drop the previous day, when CEO Jensen Huang’s keynote at the GPU Technology Conference failed to impress. However, market chatter on suggests sentiment had turned cautiously bullish.
What’s Next? Volatility, Most Likely
For now, the Fed’s balancing act, holding rates steady while keeping the scissors ready for future cuts, has calmed markets. But Powell still has to navigate inflation pressures, a cooling economy, and trade policy wildcards.
And here’s the part traders are watching closely: the Fed’s forecasts assume a relatively smooth glide lower for inflation and a manageable economic slowdown. Some are sceptical. With core PCE inflation still above target at 2.7% and tariffs injecting fresh uncertainty, it wouldn’t take much for the Fed’s “gradual” cuts to turn into a more urgent easing cycle, especially if corporate earnings start reflecting deeper cracks.
But markets have seen this movie before. The Fed’s projections are just that — projections. Powell may be leaving the door open for rate cuts, but the data will ultimately decide how fast, or even if, they arrive. If inflation proves stubborn or geopolitical risks escalate, the narrative could shift fast. Investors cheering this rally might soon find themselves recalibrating expectations again.
Wednesday’s Nasdaq rally, propped up by futures pushing toward 20,143 intraday before closing at 19,943, may be a breather rather than a turning point. The next few weeks will reveal whether the Fed’s projections are realistic or wishful thinking, and traders won’t wait for Powell to confirm which one it is.
