Wall Street Cheered the Fed’s Unchanged Rate Outlook

NAS100 Analysis

The Federal Reserve unanimously kept rates at 5.25-5.50% on Wednesday and made almost no changes to the policy statement. It hinted again at peak rates, while reiterating it is not yet ready to remove restraint. Chair Powell was relatively tight–lipped and largely in-line with previous commentary for rate cuts "at some point this year". He also appeared to downplay recent sticky inflation readings, saying they "haven't really changed the overall story" and does not think strong hiring would be enough to hold off rate cut in and of itself. ^[1]

Officials did not change their views around this year's appropriate policy path either, since they maintained the projection that implies three cuts. They did though raise their forecasts for GDP and core PCE inflation, while lowering their unemployment projection ^[2]. This is a dovish contradiction and markets interpreted it as such. They strengthened their bets for June as the starting point of lower rates and chances of less than three cuts diminished. The greenback fell as a result and the stock market rose to new all-time highs.

At the same time, Wall Street continues to draw strength from the gen AI revolution that drove last year's rally. Its enabler, NVIDIA, unveiled its new and more powerful Blackwell AI chips earlier this week ^[3]. Speaking on CNBC, CEO Jensen Huang said that this is the "the beginning of this AI computing ramp", which will last "a few years" ^[4]. Shares of Micron Technology (MU.us) meanwhile surged nearly 20% in extended trading, after the memory chip maker said it is "one of the biggest beneficiaries" of the AI boom, while posting strong quarterly results and rosy guidance. ^[5]

NAS100 rises to new record highs after these developments and remains on track to challenge the 19,000 mark. On the other hand, the Fed does not really have a compelling reason yet to cut rates, given recent inflation persistence, strong economy and still tight labor market. Furthermore, the RSI points to overbought conditions and the tech heavy index could face pressure back towards the EMA200 (17,860-17,781). Daily closes below it would pause the bullish bias, but strong catalyst would be needed for that and the downside appears well protected.