Fed Holds Rates Steady — Signals Two Cuts Before Year-End

The Federal Reserve held its benchmark interest rate at the current target range at its May meeting, as policymakers assessed the pace of disinflation and the resilience of the labour market. The decision was unanimous and broadly in line with market expectations.

In the post-meeting press conference, Fed Chair indicated that while progress on inflation has been meaningful, the committee wants further evidence before beginning the easing cycle. However, the updated dot plot — the Fed's projection of future rates — now shows a median expectation of two cuts before December, a shift that sent equities notably higher.

Market reaction

The S&P 500 gained 1.4% on the day, bond yields fell across the curve, and the US dollar weakened modestly against major peers. Rate-sensitive sectors including real estate, utilities, and small-cap stocks led the rally.

• —S&P 500 +1.4% on the session
• —10-year Treasury yield fell 8 basis points to 4.18%
• —USD index down 0.6% on the day
• —Gold rose to $2,380/oz on the softer dollar

The committee does not believe it is appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent. — Fed Statement