fed holds steady: stagflation looms over markets

2025-06-18 general

washington, Wednesday, 18 June 2025.
the federal reserve has decided to hold interest rates, remaining in the 4.25% to 4.5% range. this decision comes amid growing concerns about stagflation. the fed anticipates higher inflation coupled with lower economic growth. chairman powell signaled a cautious approach. he stated the fed is ‘well positioned to wait’ on rate cuts. simultaneously president trump called powell ‘stupid’ reflecting the tensions between the executive branch and the central bank. this decision has sparked market apprehension, leading to a slight dip in the dow jones.

market reaction to fed decision

Following the federal reserve’s announcement, the dow jones industrial average declined by 44.14 points, closing at 42,171.66 [1]. this reflects investor concern regarding the fed’s cautious stance on interest rate cuts and the potential impact of this approach on economic growth [1]. despite the dow’s decline, the nasdaq composite, which is heavily weighted towards technology stocks, experienced a slight rebound, increasing by 25.182 points to close at 19,546.273 [1]. this divergence indicates differing investor sentiment across various sectors of the market [1].

powell’s perspective and tariff implications

Federal reserve chair powell acknowledged the strength of the u.s. economy, stating that it has consistently defied expectations of weakening [2]. however, he also emphasized that near-term inflation expectations have risen, partly due to the impact of tariffs [2]. powell stated that tariffs would inevitably lead to increased inflation, as businesses and consumers would bear the costs [2]. byron anderson, head of fixed income at laffer tengler investments, suggested the fed is prioritizing low tariff inflation, even if it means sacrificing employment and gdp growth [2].

interest rate projections and market expectations

The fomc participants’ policy rate projections, revealed after the meeting, maintained the median expectation of two 0.25% rate cuts by the end of 2025 [1]. despite this, the market’s expectations for interest rate movements show uncertainty [4][5]. for the fomc meeting on july 31, 2025, there’s an 87.2% probability that the target interest rate will remain in the 4.25% to 4.50% range [4]. futures prices indicate expectations for slight easing in the longer term, but the fed’s data-dependent approach keeps all options open [2][4].

geopolitical tensions and market volatility

Adding to market anxieties, escalating tensions in the middle east are casting a shadow over investor sentiment [1]. president trump’s remarks regarding potential actions against iran have heightened concerns about regional instability and potential disruptions to oil supplies [1]. the market is particularly sensitive to the possibility of the strait of hormuz, a critical route for oil transportation, being blocked [1]. these geopolitical factors, combined with the fed’s policy decisions, contribute to overall market volatility [1][7].

sector performance and individual stocks

The market reaction was mixed across different sectors [1]. visa, mcdonald’s and boeing experienced declines, while amazon and salesforce also faced selling pressure [1]. conversely, goldman sachs, jp morgan chase, and caterpillar saw gains [1]. these individual stock movements reflect how investors are recalibrating their portfolios in response to the fed’s outlook and broader economic uncertainties [1]. the contrasting performance highlights the need for investors to carefully assess individual company fundamentals and sector-specific risks [1].

Bronnen

interest rates stagflation