Wall Street’s excitement about a potential pause in the Federal Reserve’s aggressive tightening campaign wasn’t enough to keep the stock rally going, with Jerome Powell dashing hopes on interest-rate cuts for now.

The bond market isn’t buying that. 

Swap contracts continued to imply a significant easing in monetary policy before the end of 2023. Treasury two-year yields sank as much as 12 basis points to around 3.85 per cent while the dollar notched a back-to-back slide.

“Potential Fed pause, but no Fed pivot yet,” said Jason Pride at Glenmede. “The Fed is telegraphing that additional monetary tightening may or may not occur, but rate cuts do not yet appear to be on the table. The Fed’s leadership is working hard to thread the needle between telegraphing too much tightening while also not agreeing with the market’s rate cut narrative.”

After the usual back-and-forth of Fed days, the S&P 500 wiped out a rally that approached 1 per cent at one stage to finish near session lows.

The Fed raised rates by another quarter-point Wednesday to a target range of 5 per cent to 5.25 per cent, the highest level since 2007. The vote was unanimous, and the Federal Open Market Committee omitted a line from its previous statement in March that said it “anticipates that some additional policy firming may be appropriate.”

More Comments:

  • Callie Cox at eToro:
    • “The Fed is dropping hints that we’re nearing the end of the rate hike cycle, even though it wants to maintain some wiggle room in case inflation stops slowing. It’s a fair concern. The good news? If this is the last hike, the S&P 500 has risen a year after six out of the last 9 hiking cycles. But in the three times stocks didn’t climb after hikes, it was because of a recession or market crisis. History doesn’t tell us much, other than the Fed better not screw this up.”
  • David Russell at TradeStation:
    • “The Fed took another step back from its super-hawkish stance by saying they need to determine future policy. They’re setting up a potential pivot by outlining a series of reasons to pause. Given developments in the banking sector and slowing inflation, there’s more chance this was the last hike.”  
  • Ronald Temple at Lazard:
    • “No surprises here. The FOMC struck an appropriate balance between taming inflation while avoiding exacerbating stress in the banking system. Assuming banking issues subside, additional rate hikes may be needed, but it’s time for a pause to allow the full effects of tightening to work its way through the economy.”
  • Gregory Faranello at AmeriVet Securities:
    • “The change is language was consistent with our view, and historically the evolution over the prior few meetings, signals the end of a tightening cycle.”
  • Peter Boockvar, author of the Boock Report:
    • “It’s just about time to call a time-out, which implies the game/fight against inflation is still ongoing, but at least they can sit back and determine ‘the extent to which additional policy firming may be appropriate to return inflation to 2 per cent over time’.”
  • Florian Ielpo at Lombard Odier Asset Management:
    • “The Fed is walking a tight line, but it seems to know what it is doing. This should be comforting to markets and investors. This is probably not the end of a volatility fixed income world, but its main enemy (surprise jumbo hikes) is going away, and this is step 1 to significantly better perspective. From an equity perspective, settling rates is probably a good thing, all the more as the earnings season was still showing a resilient economy.”

Key events this week:

  • U.S. initial jobless claims, trade balance, Thursday
  • European Central Bank rate decision, followed by ECB President Christine Lagarde’s news conference, Thursday
  • U.S. unemployment, nonfarm payrolls, Friday

Some of the main moves in markets:


  • The S&P 500 fell 0.7 per cent as of 4 p.m. New York time
  • The Nasdaq 100 fell 0.6 per cent
  • The Dow Jones Industrial Average fell 0.8 per cent
  • The MSCI World index fell 0.2 per cent


  • The Bloomberg Dollar Spot Index fell 0.4 per cent
  • The euro rose 0.5 per cent to US$1.1053
  • The British pound rose 0.7 per cent to US$1.2552
  • The Japanese yen rose 1.1 per cent to 135.03 per dollar


  • Bitcoin fell 1.3 per cent to US$28,321.04
  • Ether was little changed at US$1,869.67


  • The yield on 10-year Treasuries declined seven basis points to 3.35 per cent
  • Germany’s 10-year yield declined one basis point to 2.25 per cent
  • Britain’s 10-year yield advanced three basis points to 3.70 per cent


  • West Texas Intermediate crude fell 4.9 per cent to US$68.14 a barrel
  • Gold futures rose 1 per cent to US$2,043.60 an ounce