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-Treasury yields and a gauge of global equities fell sharply after the Federal Reserve left interest rates unchanged as expected on Wednesday but indicated it would not reduce them until inflation was “moving sustainably” toward its 2-percent target.
The Fed took a major step toward lowering rates in coming months in a policy statement that tempered inflation concerns with other risks to the U.S. economy and dropped a longstanding reference to possible further hikes in borrowing costs.
The dollar rose against the euro and other major currencies after Fed Chair Jerome Powell at a press conference said that a rate cut in March was not the U.S. central bank’s “base case,” comments that were less dovish than many investors had expected.
First and foremost, the Fed wanted to double down on its inflation fighting credibility, said Michael Arone, chief investment strategist for State Street’s U.S. SPDR business in Boston.
“That’s a signal to the market that it shouldn’t get ahead of itself on the potential for all these rate cuts” that had been priced in to the market, Arone said.
“They also wanted to balance that with the notion that they do believe that it will be appropriate to cut rates later this year.
