The U.S. Federal Reserve concluded its policy meeting on Wednesday, announcing a decision to keep interest rates unchanged, which aligned with market forecasts. However, the policy statement, now reflecting a more assertive stance, has shifted notably. It no longer emphasizes "closely monitoring risks on both employment and inflation" but instead prioritizes "price stability" as its primary objective.
Furthermore, the central bank removed its previous forward guidance on the future path of interest rates. The latest "dot plot," which charts policymakers' rate expectations, indicates that half of the officials anticipate at least one interest rate increase this year.
The hawkish signals from the Fed led to a broad rise in U.S. Treasury yields across all maturities, putting pressure on risk assets. All eleven sectors of the S&P 500 declined, with communication services and consumer discretionary stocks leading the losses. The three major U.S. stock indices closed lower on Wednesday. By the close, the Dow Jones Industrial Average was down 0.98%, the S&P 500 fell 1.21%, and the Nasdaq Composite dropped 1.34%. Among notable individual stocks, SpaceX shares closed lower for the first time since its listing, declining 4.95%. The rise in Treasury yields weighed on the valuations of high-growth stocks.
Central Bank Revises Inflation Forecasts and Downgrades Growth Outlook
In addition to the hawkish policy statement and interest rate projections, the Summary of Economic Projections released by the Fed on Wednesday showed significant revisions. The median forecast for this year's Personal Consumption Expenditures price index inflation was raised sharply to 3.6% from 2.7% in March. The core inflation forecast for the year was also increased, moving to 3.3% from 2.7%. Concurrently, the growth outlook for the U.S. economy this year was revised down to 2.2% from the previous estimate of 2.4%.
Additionally, breaking from tradition, the Fed Chair did not submit personal economic and interest rate forecasts. During a press conference, it was also mentioned that the Federal Reserve has established five special task forces to drive a series of reforms. These potential changes include possibly altering the inflation measurement gauge and prioritizing interest rate tools over balance sheet tools.
Mixed Performance Across European Markets
European stock markets traded independently on Wednesday, as they closed before the Fed's rate decision and policy statement were released. Blue-chip stocks in sectors such as finance, semiconductors, and energy saw notable gains. However, shares of BMW plunged 8.34% to a near six-year low due to weak sales in its major overseas markets. Consequently, the three major European indices ended the session with mixed results. At the close, the UK's FTSE 100 was up 0.14%, France's CAC 40 fell 0.20%, and Germany's DAX gained 0.10%.
International Oil Prices Rebound
In the crude oil futures market, international oil prices reversed their recent downward trend on Wednesday, posting a slight rebound. This move was attributed to technical buying and investor caution regarding navigation prospects in the Strait of Hormuz. At settlement, the price for July delivery of West Texas Intermediate crude on the New York Mercantile Exchange closed at $76.79 per barrel, marking a gain of 0.97%.
The price for August delivery of Brent crude on the Intercontinental Exchange in London settled at $79.55 per barrel, rising 0.75%.
Precious Metals: Initial Gains Followed by Sharp Asian Session Decline
In the precious metals sector, the Fed's decision to hold rates steady met market expectations. However, the accompanying hawkish signals triggered a late-session sell-off in gold. Based on the weighted settlement price for the day, international gold and silver prices showed modest gains compared to the previous session on Wednesday. At the close, the price for August delivery of gold futures on the COMEX settled at $4,381.40 per ounce, up 0.62%.
The price for July delivery of silver futures settled at $70.767 per ounce, increasing by 1.08%.
Entering the Asian trading session on Thursday, precious metals prices opened significantly lower and continued to decline. As of 7:30 AM Beijing Time on Thursday, the international gold price had briefly fallen below the $4,300 per ounce mark, representing a drop of over 2%.
The international silver price broke below the $70 per ounce level, declining nearly 4%.
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