The S&P 500 and the Nasdaq scored record closing highs for the third consecutive session on Wednesday and U.S. Treasury yields pared earlier declines as investors weighed a market-pleasing inflation report against lowered interest rate cut expectations.
The dollar shed some weakness after the U.S. Federal Reserve concluded its two-day policy meeting by leaving interest rates unchanged, and released its accompanying policy statement and Summary of Economic Projections (SEP).
The S&P 500 and the Nasdaq ended sharply higher, while the blue-chip Dow turned slightly negative toward the end of the session.
The more-hawkish-than-expected SEP seemed to contradict the Labor Department’s closely watched CPI report released earlier in the day, which showed core prices growing at their slowest annual pace in over three years.
“It’s a little disappointing to see this continued hawkishness, especially on the same day where you get one of the softest inflation reports in probably a couple of years,” said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky. “The market is going to struggle a bit with how hawkish the Fed is in light of all of not only this morning’s data, but last week’s as well.”
In his press conference following the decision, Fed Chair Jerome Powell acknowledged that inflation has eased substantially but remains too high and rate-cut expectations have been pushed out due to slower-than-expected progress in bringing price growth down to the central bank’s 2% goal.
“I think the main takeaway will be that the market was probably expecting the Fed to shift the dot plot from three cuts to two cuts,” Mayfield added. “Instead it was shifted from three cuts to one cut, which on margin is a hawkish surprise.”
