By Davide Barbuscia, Laura Matthews and Suzanne McGee
NEW YORK (Reuters) -Investors are taking some comfort from the U.S. Federal Reserve’s wait-and-see approach, after being rattled by tariff-related turmoil that poses a threat to markets and the economy.
Since returning to the White House on January 20, U.S. President Donald Trump’s rapid-fire tariff policies have spooked stock markets and dented consumer and business confidence, with investors balancing hopes of a pro-business, deregulatory and lower tax agenda against fears of a trade war and potential recession.
Fed policymakers signaled a cautious stance of their own on Wednesday at a policy meeting that left interest rates unchanged but acknowledged rising risks to both growth and inflation. Still, the U.S. central bank remained hesitant to price in a lasting inflation surge or a significant economic blow from Trump’s trade policies. Chair Jerome Powell stressed that uncertainty was high and that the central bank was waiting for greater clarity — a message that resonated with markets.
“The Fed is in tune to the economic risks,” said Josh Emanuel, chief investment officer at Wilshire. “I think there’s a clear acknowledgement that this is a period of tremendous uncertainty, and it would be somewhat irresponsible for them to imply a meaningful, material shift in policy without clarity on what administrative policies are going to look like.”
Futures bets in money markets on Wednesday showed traders were now expecting 68 basis points in interest rate cuts this year, up from about 56 basis points – or just over two 25-basis-point cuts – earlier in the day before the Fed issued its rate decision.
Stocks pushed higher following the Fed’s decision, with the benchmark S&P 500 ending up 1.1% on the day, while benchmark 10-year Treasury yields were down about four basis points.
Still, the S&P 500 index has dropped by about 8% over the past month, giving up all of its gains since Trump’s November election, and in a sign of mounting investor worries about recession and a global trade war, the spreads between the yields on corporate bonds and U.S. Treasuries last week hit their widest in about six months.
A nearly unanimous majority of economists see increased risks of recession, according to a recent Reuters poll. Surveys of business and consumer confidence have weakened, and administration officials have acknowledged their actions could be painful, at least in the short run.
“We were on a pretty good trajectory coming into the year, and we know that policy uncertainty … is pulling back a lot of spending at the consumer level, and it is going to pull back capital expenditure at the corporate level,” said James Camp, managing director of strategic income at Eagle Asset Management.
