📉US500 loses 0.65% after Fed decision

The US500 reacted negatively to the Federal Reserve's statement, as it suggests a less dovish stance than at the previous meeting. What can we find in the statement?

• Inflation concerns: Although it did not explicitly state that there is no progress toward the inflation target, the Fed removed the phrase regarding progress toward the 2% inflation target and admitted that “inflation remains somewhat elevated.” This suggests that the Fed is more concerned about the persistence of inflation than previously communicated and may have to hold interest rates higher for a longer period of time. Certainly Powell will answer questions about the change in communication
• Change in tone on the labor market: The Fed removed the statement about “easing” labor market conditions, and instead emphasized a “low” unemployment rate and a “robust” labor market. A strong labor market could potentially lead to elevated inflation. Continued uncertainty over the new administration's tariff policy is another factor that is likely to curb any 'dovish' drive by the Fed in the coming months.
• Data dependence: The Fed has reiterated its data-driven approach. This means that future interest rate decisions depend on upcoming economic data, particularly inflation and employment data. If the data continue to point to a strong economy and stubborn inflation, the Fed may be forced to adopt a more hawkish stance (higher rates).

The Fed's statement signals the possibility of keeping interest rates higher for a longer period of time.This increases borrowing costs for companies, lowers expectations for future earnings, and makes stocks less attractive compared to less risky investments such as bonds, as treasury yields rise.

• Yields on 10-year U.S. Treasury bonds rise by almost 3.5 basis points to 4.58% after the decision. However, it's worth considering that the indexes were already losing before the decision, following news of potential restrictions on sales of Nvidia's AI chips to China, further weakening the US500 and US100.
• After the decision, the US500 contract lost 0.6%, but we will have to wait until the press conference with Fed Chairman Powell (7:30 PM GMT) for the final market reaction. The US500 is currently testing the 6050 point level and is below yesterday's opening candle. If the declines continue, this could mark the lowest close since January 20. The key resistance level in the short term appears to be 6000 points, where we saw elevated trading volumes during Monday's sell-off.

Source: xStation5