(Bloomberg) — Stocks climbed, bonds fell and the dollar outperformed most major currencies as traders braced for the Federal Reserve’s interest-rate decision, following a market turmoil that shed trillions of dollars from American equities amid economic jitters.
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The rebound in the S&P 500 was led by recently battered megacaps like Tesla Inc. and Nvidia Corp. The options market is pricing a 1.2% move in the stock benchmark in either direction – up from an average of 0.8% for Fed Days in the past year, according to data compiled by Citigroup Inc. Despite the gains in equities, Treasuries saw a slightly more “hawkish setup,” with a bigger increase in shorter-term US yields relative to the rest of the curve.
Fed officials will likely keep rates steady Wednesday, buying time to assess how President Donald Trump’s policies could impact an economy facing price pressures and growth concerns. Jerome Powell will probably reinforce that policy is well positioned, with analysts expecting the central bank to again signal two reductions this year in the so-called “dot plot.”
“This will be the first Fed meeting since the markets started to react negatively to trade tensions,” said Michael Rosner at Raymond James. “We expect volatility around the press conference, as we are still in a very headline-driven and headline-sensitive market.”
The Fed’s rate decision, along with officials’ updated quarterly economic forecasts, will be released at 2 p.m. Wednesday in Washington. Powell will hold a post-meeting press conference 30 minutes later.
The S&P 500 rose 0.7%. The Nasdaq 100 added 0.9%. The Dow Jones Industrial Average gained 0.6%. Boeing Co. is predicting cash-flow improvement, Morgan Stanley is planning to slash jobs, and General Mills Inc. cut its sales guidance.
The yield on 10-year Treasuries rose two basis points to 4.31%. The dollar gained 0.4%. The yen fell as the Bank of Japan suggested no rush to hike. Turkish markets buckled after the detention of President Recep Tayyip Erdogan’s most-prominent rival.
“After weeks of market turmoil, the Fed could inject some calm into the conversation,” said Arthur Hogan at B. Riley Wealth. “The central bank is widely expected to remain paused with its interest-rate moves. At the same time, soothing prognostications from Powell around economic stability could help alleviate some of the jitters.”
Peter Boockvar, author of the Boock Report, says he still sees an easing bias within Powell and the institution’s thought process.
“Overall though, visibility is extremely limited as we all know, and maybe we’ll need a word count from Powell today on him saying ‘I don’t know’.”
“It seems the markets were looking to Powell to be a ‘father figure’ of sorts, exhibiting confidence, conviction, and stability,” Mark Malek at Siebert Financial.”And these days, that can go a long way to salve the exposed nerves of investors.”
At Macquarie, Thierry Wizman says by maintaining ambiguity regarding the outlook and timing of the next policy rate move, the Fed and Powell may actually come off a bit “hawkish,” and thus disappoint traders that had been hoping that weak economic data would compel a more dovish disposition.
The Fed needs to make it clear at its policy meeting this week that it may have to cut rates if there are continuing signs that the economy is slowing, according to Mohamed El-Erian.
For now, the Fed should postpone rate cuts while also avoiding raising inflation expectations, El-Erian, president of Queens’ College, Cambridge, told Bloomberg Television Wednesday.
Looking ahead, a key question for Fed policymakers is how they might respond to a situation where inflation remains stubborn, but the economy weakens.
Nearly three-quarters of a recent Bloomberg News survey showed respondents now see weaker growth in 2025 compared with their estimates at the end of 2024. About two-thirds said they now forecast higher inflation.
Roughly two-thirds of respondents said they would expect the Fed to hold rates steady if the economy were to weaken while inflation remains elevated.
Some of the main moves in markets:
Stocks
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The S&P 500 rose 0.7% as of 1:02 p.m. New York time
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The Nasdaq 100 rose 0.9%
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The Dow Jones Industrial Average rose 0.6%
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The Stoxx Europe 600 rose 0.2%
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The MSCI World Index rose 0.6%
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Bloomberg Magnificent 7 Total Return Index rose 1.2%
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The Russell 2000 Index rose 0.9%
Currencies
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The Bloomberg Dollar Spot Index rose 0.4%
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The euro fell 0.6% to $1.0884
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The British pound fell 0.2% to $1.2973
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The Japanese yen fell 0.5% to 149.95 per dollar
Cryptocurrencies
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Bitcoin rose 3.1% to $84,591.64
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Ether rose 7.4% to $2,046.14
Bonds
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The yield on 10-year Treasuries advanced three basis points to 4.31%
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Germany’s 10-year yield was little changed at 2.80%
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Britain’s 10-year yield declined one basis point to 4.63%
Commodities
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Sujata Rao, Levin Stamm, Margaryta Kirakosian, Winnie Hsu and John Viljoen.
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