Stocks showed little change after the Federal Reserve kept interest rates steady but signaled that cuts could still come later this year. Investors focused on Fed Chair Jerome Powell’s remarks warning that the impact of heightened U.S. tariffs has yet to be felt. Meanwhile, tensions escalated in the Middle East as Israel and Iran exchanged fresh airstrikes, with markets awaiting clarity on whether President Donald Trump will involve the U.S. in the conflict.
Markets Steady Amid Fed Decision
The S&P 500 closed nearly flat on Wednesday as markets digested the Fed’s decision to hold rates at 4.25%-4.5%. The Nasdaq edged up 0.1%, while the Dow Jones slipped 0.1%. Underlying concerns over the Middle East persisted.
Middle East Conflict Intensifies
On Thursday, Israel struck a major Iranian nuclear facility in Arak, while Iranian missiles targeted an Israeli hospital. The weeklong violence marks the worst escalation yet, with Israel targeting Iranian nuclear sites and military leaders, and Iran retaliating with attacks killing at least two dozen civilians.
President Trump remained ambiguous about U.S. involvement, saying, “nobody knows what I’m going to do,” while also noting that Iranian officials had sought talks but “it’s a little late.” Trump faced criticism from some supporters urging the U.S. to avoid entering another Middle East war.
Oil prices rose modestly on fears that the conflict could disrupt critical crude shipping lanes.
Fed Signals Cautious Path on Rates
The Fed kept rates unchanged but maintained projections for a 50 basis-point cut in 2025, consistent with previous forecasts. However, it slowed the pace of expected rate cuts for 2026 and 2027, indicating a potentially prolonged battle to rein in inflation.
Powell warned that Trump’s tariffs might soon cause a “meaningful” increase in consumer prices. He also emphasized the uncertainty around future rate paths, as economists expect tariffs could reignite inflation, weaken labor demand, and slow growth.
The Fed now expects inflation to end 2025 at 3%, growth to slow to 1.4%, and unemployment to rise slightly to 4.5%, suggesting a period of modest stagflation ahead.
Bank of England Decision Looms
Attention shifts to the Bank of England on Thursday, where rates are expected to remain at 4.25%. Inflation data showed a slight cooling in May to 3.4% year-on-year, still above the BoE’s 2% target. Monthly inflation ticked up 0.2%, down from March’s sharp rise. Analysts expect the BoE to carefully weigh recent inflation trends and trade developments before adjusting policy.
Trump Pushes Stablecoin Bill
Separately, Trump praised Senate approval of the GENIUS Act, a bill to regulate stablecoin cryptocurrencies, urging the House of Representatives to pass it swiftly. The legislation aims to set reserve requirements and transparency rules for stablecoin issuers, positioning the U.S. as a leader in digital assets. Stablecoins are cryptocurrencies pegged to traditional currencies like the U.S. dollar, widely used for crypto transactions and payments.
Leave a Reply