(Jan 29): The Federal Reserve’s decision to leave rates steady sent stocks and bonds wavering, with Jerome Powell refraining from signaling any imminent resumption of rate cuts amid a solid economy. The dollar rose as Treasury Secretary Scott Bessent touted a strong currency.
Bonds barely budged. Following a tech-led rally that drove the S&P 500 briefly above 7,000, equity gains faded. In late hours, Meta Platforms Inc jumped on a bullish outlook. Tesla Inc. climbed as profit beat estimates. Microsoft Corp sank as record spending raised concerns that it will take longer than expected for artificial-intelligence investments to pay off.
Powell talked up a “clear improvement” in what’s expected for the economy in the year ahead. The Fed chief reiterated the labor market has shown signs of stabilising, but added, “I wouldn’t go too far with that,” noting there were also signs of cooling. He demurred when asked what it may take for the committee to cut again.
“The Fed song remains the same — lower interest rates may be coming, but investors will have to remain patient,” said Ellen Zentner at Morgan Stanley Wealth Management. “With signs of stabilisation in the labor market and inflation holding steady, the Fed is in position to play the wait-and-see game.”
The Federal Open Market Committee voted 10-2 to hold the benchmark federal funds rate in a range of 3.5%-3.75%. Governors Christopher Waller and Stephen Miran dissented in favor of a quarter-point reduction.
Just two dissents underscored how tight the consensus is, which means any new Fed Chair that comes in after Powell’s term is up will have a hard time convincing other officials that rates need to go much lower, according to Sonu Varghese at Carson Group.
See also: Fed holds rates steady, nods to stabilisation in jobless rate
“The Fed is likely on an extended pause with strong activity data and signs of stabilisation in the labor market suggesting little need to take out further insurance,” said Kay Haigh at Goldman Sachs Asset Management. “However, we expect easing to resume later in the year as a moderation in inflation allows for two further ‘normalisation’ cuts.”
The S&P 500 was little changed. The yield on 10-year Treasuries was little changed at 4.25%. The dollar climbed 0.4%. Bessent told CNBC the US hasn’t intervened to strengthen the yen, sending the Japanese currency slumping almost 1%. Gold topped US$5,300.
“In a word, today’s FOMC was ‘boring’,” noted Jack McIntyre at Brandywine Global.
See also: US mortgage rates increase for first time in four weeks
He said the tone around the economy was skewed toward “hawkish patience” — showing the Fed is not in a hurry to see lower policy rates until at least the summer.
“The message: the Fed is comfortable on pause at 3.5% to 3.75% and could stay there for a while as it looks to confirm that the labor market is in the process of stabilising, police the tariff-driven inflation peak still to come and assess the impact of fiscal stimulus from coming tax refunds,” said Krishna Guha at Evercore.
The statement is consistent with his longstanding call that Powell will probably not cut rates again before he steps down as chair in May.
“Recent data continues to show an economy still running hot, with strength across multiple fronts,” said Seema Shah at Principal Asset Management. “And with the unemployment rate unexpectedly dropping last month, the Fed feels confident enough to remove any reference to downside risks. Still, the flurry of high‑profile layoffs suggests it’s too early to declare victory.”
There is justification for the “wait-and-see” approach given the potential for a “second wave” of higher prices as the tariff pass-through rate increases, noted Eric Teal at Comerica Wealth Management.
Given the more likely Fed view that dual risks of inflation and unemployment are mostly in balance, we should not expect any change in policy at the March meeting, according to Jeffrey Roach at LPL Financial, who sees policy easing only later this year.
The change to the Fed’s statement is another sign that the Fed is unlikely to cut interest rates again for at least a couple more meetings, according to Stephen Brown at Capital Economics. Nonetheless, the two dissenting votes in favor of a 25 basis-point cut suggest that the bias is still toward further loosening, he said.
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“Lingering effects of potential distortions in economic data may have prompted the majority of voting Fed officials to pause and await more data,” said Luis Alvarado at Wells Fargo Investment Institute. “It also seems that the threat of inflation remaining stuck in the upper 2’s% is a big concern.”
In his view, the window of opportunity for further cuts, if truly data-dependent, may be shrinking as we move forward into 2026. However, given all the potential crosscurrents in Fed voting composition, he believes there is potential for two additional cuts later in 2026.
While the Fed continues to see inflation as “somewhat elevated,” the tone suggests no urgency to cut again in the near term, according to Dan Siluk at Janus Henderson Investors.
“Dissenting dovish votes from Governors Waller and Miran highlight an ongoing internal split, but the majority is adopting a more patient, data‑dependent stance, supported by firmer growth and tentative labor‑market stability,” he said.
“Today’s decision is unlikely to move the needle much on 2026 rate cut expectations,” said Jason Pride at Glenmede. “A reasonable base case is that the Fed takes up 1-2 more cuts, but that process is likely to begin toward the middle of the year.”
This allows the Fed to gather more data before it is confident of further progress on inflation and/or sufficiently worried about further labor market deterioration, especially since some official data sources continue to deal with lingering impacts from last year’s government shutdown, Pride added.
“The Fed has lots of time to make up its mind,” said David Russell at TradeStation. “Inflation is still running above target and jobless claims are low. We’re also expecting more stimulus from tax refunds, so if ever there was a good time to stand pat, this was it. The committee has settled into two groups in Powell’s final months, with most wanting to wait and see and a smaller dovish faction.”
This unsurprising statement lets investors shift focus from economic news to earnings, which are likely to be the main catalyst in coming weeks, he added.
The easing bias is still there, but this pause could give the dollar a lift and keep the 10‑year yield anchored in the upper half of that 4% to 4.5% range, according to Angelo Kourkafas at Edward Jones. For equities, the takeaways are limited, in his view.
“We expect stocks can continue to benefit from the tailwinds of rising earnings, solid growth, and supportive financial conditions,” Kourkafas added.
The Fed paused, but the “pivot is still alive,” according to Gina Bolvin at Bolvin Wealth Management Group.
“Markets are reading this as a strategic pause, not a policy shift,” she said. “For investors, it’s a reminder to stay positioned in high-quality growth, income-generating assets, and sectors that benefit from a lower-rate environment on the horizon.”
“The path of least resistance is higher and although there will be pullbacks along the way – as there always are – we believe that the underlying strength in the economy will underpin corporate profits and stock prices will move higher as a result,” said Chris Zaccarelli at Northlight Asset Management.
Looking ahead, easing inflation pressures and resilient corporate profits point to an environment where financial conditions can stay supportive even without rapid rate cuts, according to Lale Akoner at eToro. Slower job growth is increasingly being interpreted as a productivity story, especially as AI adoption changes hiring patterns, rather than a signal of an impending downturn.
That matters for markets: productivity-led growth allows margins to hold up even as wage pressures cool, Akoner noted.
“For investors, this backdrop favors staying invested in risk assets in 2026, with a bias toward quality equities, companies leveraging productivity gains, and sectors with pricing power and strong cash flows,” Akoner said. “Bond markets are likely to remain range-bound, while equities should be driven more by earnings delivery than Fed expectations.”
With geopolitical noise easing for now — having stolen the limelight from what’s been a relatively quiet year for AI so far — attention may soon swing back to where tech and AI fundamentals really stand, according to Jim Reid at Deutsche Bank AG.
Given lingering valuation concerns, investors are heading into the tech earnings season seeking clarity on AI demand and monetisation, as well as capital investment guidance, according to Ulrike Hoffmann-Burchardi at UBS Global Wealth Management.
“We believe AI will remain a key driver for equity performance, and see beneficiaries broadening into the intelligence and application layers,” she said.
Hoffmann-Burchardi expects US equities to stay supported and forecast the S&P 500 to reach 7,700 by year-end with “broad-based” gains.
“We see opportunities across the tech, health care, financials, utilities, and consumer discretionary sectors, and recommend investors with concentrated positions to diversify their exposure,” she said.
After three straight years of double-digit returns, concentrated around the largest companies levered to the AI trade, the market has “broadened out” to start the year with energy, materials and staples leading gains, noted Chris Senyek at Wolfe Research.
Optimism that the American economy is set to take off has fueled the rotation, with companies whose fortunes are closely tied to the business cycle attracting investor cash. At the same time, AI investing has become less monolithic in the tech sector, with investors starting to choose winners and losers.
“The ‘broadening out’ trade stops with big tech earnings,” said Senyek. “Our sense is the combination of solid fourth-quarter results, lower valuations, and continued AI tailwinds will likely pull investor interest back into these companies.”
Until a more significant macro or regulatory shock forces a reset, earnings momentum is likely to stay elevated and big tech will continue to lead the market narrative,” according to Chris Brigati at SWBC.
“Big tech and the AI trade continue to push higher with remarkable strength, and investors should stay constructive on near‑term growth while remaining realistic that the current pace will eventually cool,” he said.
When that happens, Brigati says disciplined stock selection becomes critical: the long‑term winners will be the companies that execute flawlessly, protect margins, lead in innovation, and stay aligned with shifting consumer spending patterns.
One of the concerns for the bulls has been the inability of the Nasdaq 100 to confirm the new all-time high in the S&P 500 in a “significant way,” according to Matt Maley at Miller Tabak.
“If the Nasdaq 100 can push to a meaningful new high — and confirm these record highs from the S&P 500 and Russell 2000 — it will still be something that will give the bulls a nice boost as we move through the end of January and into February,” he said.
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