At the recent FOMC meeting, Fed Chair Powell issued another pause, although he acknowledged that inflation has "eased substantially" but remains above the 2% target. While avoiding specifics for upcoming meetings, Powell signalled a data-dependent approach, seeking more evidence before cutting rates. He dismissed concerns that a strong labour market would deter rate cuts, reiterating the Fed's determination to ease monetary policy. However, Powell's remarks downplayed the impact of recent hot inflation prints, which is a cause for doubts about the Fed's commitment to controlling rising prices. With plans to resume quantitative easing, aggressive rate cuts could reignite inflation in areas like housing and food prices.
EQUITY
Wall Street cheered on the interest rate projection, closing about 1% higher on Wednesday. The consumer discretionary sector led the gains, climbing 1.5%, boosted by Amazon and Tesla's price hike announcement, while the healthcare sector lagged, dragged down by BioNTech, Moderna, and Novavax. Equinix shares fell after Hindenburg Research disclosed a short position in the data centre operator, citing manipulative accounting practices.
GOLD
Gold prices surged to an all-time high, breaching $2,200 per ounce, as the Federal Reserve maintained its projection of three rate cuts for this year. It has been an eventful month for the yellow metal, gaining almost 9% at its high. Despite the rapid ascent surprising many market observers, the Fed's dovish stance and a potential squeeze on existing shorts have bolstered bullishness in the gold market, but it can also spell disaster for riskier assets.
OIL
Crude oil prices rebounded after closing 2% lower in anticipation of the rate decision. A higher drawdown in U.S. crude and gasoline inventories supported the price. However, gains will probably be capped by the Fed's "higher for longer" rhetoric, limiting economic growth and future fuel demand in the short term. Geopolitical tensions surrounding Russia's invasion of Ukraine remain a valid concern as supply tightens, although weakness is expected ahead.
CURRENCY
The U.S. dollar fell broadly after the Federal Reserve maintained its interest rate cut projections despite upside inflation surprises, not striking a more hawkish tone. The Australian dollar jumped on strong employment data, pointing to a tight labour market. Major currencies like the euro and sterling posted one-week highs against the greenback as traders rebuilt bets on a Fed easing cycle beginning in June.
