On January 29, local time, the Federal Reserve concluded its two-day monetary policy meeting and announced it would maintain the target range for the federal funds rate at 4.25% to 4.5%. This marks the first pause in interest rate cuts since the Fed began its cutting cycle in September 2024, which aligns with widespread expectations from the public and analysts alike.

The announcement significantly impacted the stock market, causing all three major indexes in the U.S. to close lower.

Federal Reserve Sends New Signals

In the Fed's decision statement, the wording regarding "progress toward the inflation target" was removed, while the phrase "inflation levels remain somewhat elevated" was retainedAdditionally, the language describing the labor market was modified to emphasize that unemployment rates remain stable at low levels, reflecting a tight labor marketThis announcement was interpreted by the markets as leaning towards a "hawkish" stance.

In response, Fed Chair Jerome Powell commented, "We made some 'language clean-up' in the statement by removing references to 'progress on achieving the inflation target' without intending to send a specific signal."

Powell also remarked on the general strength of the U.S. economy, indicating that while the labor market has shown signs of cooling, it remains robust

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He noted that reserve funds are still ample, and they are closely monitoring signals related to reservesOverall financial conditions appear somewhat accommodative, with banks showing sufficient capital, and household financial health being stableMany indicators are currently suggesting that asset prices are high, warranting attention from a financial stability perspective, particularly regarding asset prices, leverage levels, and financing risks.

At the monetary policy meeting scheduled for December 2024, Fed officials expect the pace of interest rate cuts in 2025 to slow significantly, possibly amounting to a total cut of 75 basis points throughout the yearHowever, recent economic and employment data have led markets to only anticipate one potential cut in 2025, or even no cuts at all.

Following this news, U.S. stock markets experienced a collective drop.

By the close of trading on Wednesday, the Dow Jones Industrial Average fell 0.31% to 44,713.52 points, the S&P 500 dropped 0.47% to 6,039.31 points, and the Nasdaq Composite decreased by 0.51% to 19,632.32 points.

In terms of individual stocks, many tech giants faced declinesFor instance, Apple gained 0.46%, while Microsoft dropped 1.09%, Amazon fell 0.45%, Nvidia declined by 4.10%, and Tesla was down 2.26%. On the other hand, some semiconductor stocks experienced mixed performance, with ASML increasing by over 4% after announcing that its fourth-quarter 2024 new orders exceeded expectations

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ASML's CEO remarked that the emergence of DeepSeek is promising, as reducing costs will allow for broader applications of AI, leading to increased demand for chips.

As a result of the overall market decline, Chinese stocks in the U.S. also fell, with the Nasdaq Golden Dragon Index closing down 1.16%. Notably, shares of Tiger Brokers dropped over 5%, and TAL Education Group fell more than 4%.

When asked if there could be interest rate cuts in March, Powell reiterated that there is no rush to make such decisions, emphasizing that the decline in inflation is occurring "slowly and sometimes bumpy." He indicated that the Fed does not need to wait until inflation falls back to 2% before considering another cut, clarifying that the recent rise in long-term rates is unrelated to the Fed's policies and instead reflects influences from term premiums.

Additionally, Powell noted that the Fed is reviewing details of executive orders to ensure policies align with applicable legal mandates.

President of the United States Critiques Powell

Analysts suggest that the uncertainty surrounding the president's tariff policies might emerge as a key factor influencing the Fed's future monetary policies, prompting investors to focus closely on Powell's comments on related issues.

Krishna Guha, head of global central bank strategy research at Evercore, stated that Powell's press conference felt "significantly less hawkish" compared to the rate decision.

During the press conference, Powell also discussed the impact of the president's economic policies

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He noted that policymakers at the Fed are observing which policies may be implemented and highlighted that they need to wait for clarity on policies in order to make reasonable evaluations of their potential economic impacts.

Powell reaffirmed that since the president called for immediate rate cuts last week, he has had "no contact at all" with the president and that he will not respond to or comment on the president's statements. "It's not appropriate for me to do so," Powell emphasized.

Powell stressed, "The public should have confidence that we will continue to do our work as usual, focusing on utilizing our tools to achieve our goals while working quietly and effectively."

After the calls for Powell to lower interest rates went unanswered, the president took to social media to criticize him, asserting that Powell and the Fed have failed to tackle "the inflation they caused" and accusing the Fed of poor performance in banking regulation, insisting that it now requires his intervention to rectify the situation.

The president also stated that the Treasury will take the lead in cutting unnecessary regulations and will facilitate loans for all U.S. citizens and businesses.

Reportedly, on January 23, local time, the president expressed during a speech that as oil prices fall, he would urge for an immediate reduction in rates

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