Wall Street was not surprised by the Fed's decision to keep interest rates unchanged, but certainly did not expect such a clear signal for a possible increase in interest rates within the year. Especially not with Trump-appointed Kevin Wars at the wheel. So, within a while, the markers were found in... red, with Dow Jones especially erasing all his profits and losing the 52,000-unit limit.
On the dashboard, Dow closed with a drop of 507 units or 0.98% at 51.492 units, S&P 500 dived 1.21% at 7,420 units and Nasdaq split 1.35% at 26,021 units.
Radical landscape change and bond market, with the yield of 10 years winning six points at 4.48% and the most vulnerable to monetary movements 2 years ejected by nearly 16 basis points at 4.20%.
The board of the Fed kept interest rates unchanged within the range of 3.50% to 3.75%, however it appeared divided about whether increases would be needed later in the year.
New financial forecasts showed that out of the 19 participants, nine officials expect at least one interest rate increase, while six of them see at least two increases! Another nine felt that there would be no change or even a reduction could follow.
Thus, the updated Financial Forecast Report and in particular the famous dot plot showed the estimated interest rate at 3.8% at the end of 2026, compared with 3.4% provided for in the respective chart in March. This revision is essentially equivalent to an interest rate increase of 25 basis points.
Analysts immediately identified that an official out of 19 did not participate in the predictions, considering it likely to be Kevin Wars.
Indeed, the new president, in his statements, confirmed that he avoided taking a position and did not submit a provision, remaining faithful to the view he has expressed that the Fed communication strategy should be changed through the financial forecast report and the publication of the famous dot plot.
"The most important conclusion came from the provisions on interest rates," commented Brett Kenwell of eToro. "The markets were prepared for higher interest rates, but Fed's predictions show that policy makers may remain more aggressive than investors expected".
In its communication, Fed stressed that inflation remains elevated and reiterated its commitment to ensuring price stability. At the same time, he continued to characterize economic growth as "strong".
However, the new report of the central bank's economists clearly reflected the deterioration of the data. The new forecast for this year's inflation was revised upwards, at 3.6% for the general index and 3.3% for structural inflation, excluding food and energy. In March the corresponding forecasts were 2.7%.
Similarly, the growth estimate now expected at 2.2% of 2.4% of the previous exposure deteriorated.
Kevin Wars, at the press conference, announced broad reforms in the operation and structure of the Fed, with the establishment of five task forces that by the end of the year will undertake to examine these changes in the following fields: communication policy, balance sheet management, use and dependence on existing data sources, productivity and employment, as well as the frameworks for inflation analysis.
However, in response to journalists' stormy questions it excluded any possibility of reviewing the 2% inflation target, which was interpreted as a victory for the bridges that really opens the way for monetary shift, since inflation remains at such high levels (in May it was formed at 4.2%)
"Today's meeting confirms that Fed's recent shift to a more severe stance is not only related to the highest energy prices," commented Goldman Sachs Asset Management's Kay Haig. "Despite the recent fall in oil, half FOMC members expect interest rate increases even within this year, reflecting labour market strength and inflation figures".
According to CME's FedWatch tool, traders now see 66% chance of raising interest rates by at least 25 basis points by the end of the year, but also 23.5% chance of increasing interest rates even more, by at least 50 basis points.
In this climate it certainly did not help the fact that hopes for the finalisation of the US-Iran agreement were struck when Donald Trump warned that the United States could resume military operations, if he is not satisfied with the terms of the agreement.
"No, not finalised. If I don't like it, we will go back to shooting them and throwing bombs at their heads," he told reporters during the G7 summit in France.
And he continued: "If I don't like it, if they don't behave properly, we will immediately return to the bombs, directly above their heads.".
According to the information leaked, the memorandum of understanding consists of 14 points and includes permanent ceasefire, lifting the American naval blockade, reopening the Straits of Hormuz and opening negotiations on the Tehran nuclear programme.
These developments stopped the multi-day fall in oil prices, which nonetheless remained below $80. Brent went up to $79.55 a barrel and American slow to 76.79.
In corporate developments, SpaceX retreated for the first time after its historical listing, by about 6%, putting an end to the three-day rally that had led it over Amazon and to the fifth place of the largest companies worldwide based on capitalization.
At the same time, Blue Origin has already begun restoring the launch platform in Florida where the New Glenn rocket exploded last month, seeking to return to flights within the year and revive its ambitions to compete with SpaceX.
In the financial sector, CME Group CEO Terry Duffy announced he would leave his position on March 1, after more than 25 years at the helm of the world's largest derivative stock market. His position will be taken by the company's financial director, Lynn Fitzpatrick, while he will be moved to the executive president position.
La-Z-Boy recorded significant gains following the announcement of results that exceeded analyst estimates for the fourth quarter, which gave impetus to her share, as well as UniQure, as she announced that she would be able to apply for approval in the US for her Huntington disease gene therapy without requiring a new clinical study.
On the contrary, bank and financial shares were under pressure as the increase in bond yields revived concerns over a prolonged period of high interest rates.
A significant fall was also recorded by Amazon, which was pressed as investors were removed from large growth shares, while oil groups such as BP and Shell continued to be pressured by the de-escalation of black gold.
Read more financial news in Newmoney. gr