\n<\/p>\n
All of the positive economic talk out of this week\u2019s Federal Reserve meeting had a negative impact on investors, who have now taken expectations for even one interest rate cut this year off the table.<\/p>\n
In his post-meeting news conference, Fed Chair Jerome Powell<\/a> took an upbeat view of current conditions, even with what he termed \u201czero\u201d net job growth and inflation staying above the central bank\u2019s 2% target. Powell called economic growth \u201csolid\u201d and rejected any notion that stagflation was taking hold<\/a>.<\/p>\n Though the Federal Open Market Committee statement<\/a> noted \u201cuncertainty\u201d associated with the Iran war, Powell never addressed it directly. With hostilities escalating in the Middle East<\/a> and the Fed seemingly not inclined to react, investors took a dim view of the prospects of easier monetary policy.<\/p>\n Rather than rally on the central bank\u2019s apparent optimism, stocks moved lower. Equity index futures<\/a> also were negative Thursday morning. <\/p>\n The moves coincided with another adjustment in fed funds futures markets that put the odds of even a quarter percentage point reduction in the Fed\u2019s benchmark interest rate at just 17.2% around 8:50 a.m. ET Thursday, according to the CME Group\u2019s FedWatch<\/a> analysis.<\/p>\n The probability of a hike even sneaked up, rising to 8.4%.<\/p>\n Market veteran Ed Yardeni called the reaction a \u201ctaper tantrum,\u201d an allusion to earlier periods when investors revolted over the expectation of tighter Fed policy.<\/p>\n \u201cThe combination of war and Fed news triggered a taper tantrum in the stock market as investors concluded that monetary policy may be limited in its ability to address the war\u2019s economic consequences,\u201d Yardeni wrote in a note posted late Wednesday.<\/p>\n \u201cIndeed, Fed Chair Jerome Powell barely mentioned the war,\u201d he added. \u201cNotably, he opined that the economy and labor markets are in good shape and that core inflation is likely to moderate in the coming months, implying the Fed will remain on pause for the foreseeable future.\u201d<\/p>\n Before the war, traders were expecting a cut in June, another in September and maybe one more before the end of the year, depending on how conditions in the labor market and with inflation played out. <\/p>\n The question had been which side of the Fed\u2019s so-called dual mandate would gain more attention \u2014 the anemic labor market<\/a> or inflation that remains above the central bank\u2019s 2% target, though well off its previous highs. <\/p>\n This week\u2019s meeting saw a mild shift in the \u201cdot plot\u201d grid of officials\u2019 individual expectations for interest rates. That left investors sifting through Powell\u2019s comments for more clues on the Federal Open Market Committee\u2019s direction.<\/p>\n \u201cPowell leaned on an argument that has repeatedly supported the Fed\u2019s patience over the past two years: the economy has absorbed shocks better than expected,\u201d Fundstrat analysts said in a note. \u201cMarkets nevertheless reacted as though Powell materially tightened the policy outlook.\u201d<\/p>\n The chair referenced uncertainty<\/a> in the forecast more than a dozen times, conditioning much of what\u2019s to come on the oil shock and the impact that tariffs will have on inflation.<\/p>\n \u201cThe next catalyst is whether incoming inflation data begins to show tariff-sensitive goods easing before higher energy costs spread more broadly,\u201d the Fundstrat team said. \u201cUntil then, Powell\u2019s framework remains intact: cautious, conditional, and still unwilling to move on forecast alone.\u201d<\/p>\n The Fed next meets April 28-29. Traders are pricing in no chance of a cut \u2014 and a 10.3% probability of a quarter-point hike in rates. <\/p>\n<\/div>\n\u2018Taper tantrum\u2019<\/h3>\n
Absorbing shocks<\/h3>\n
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