Fed Decision Trims US Stocks, Gold Gains; Bonds Rebound 4 Bps

On Wednesday, June 12th, as expected, the Federal Reserve kept its interest rate policy unchanged, maintaining the federal funds rate range at 5.25% to 5.50% for the seventh consecutive meeting since last July, at a level not seen in over two decades.

The Federal Reserve anticipates that inflation will "further moderately improve," reflecting the officials' interest rate opinions in the "dot plot," which has reduced the number of rate cuts expected within the year from three to one. This is somewhat hawkish and unexpected but not entirely out of line with some market participants' expectations.

After the interest rate decision was announced, the gains in U.S. stocks and gold narrowed, and the declines in the U.S. dollar and U.S. Treasury yields also narrowed:

U.S. stocks' gains slightly narrowed, with the S&P 500's increase less than 1%, and the Dow Jones Industrial Average briefly turned negative.

The two-year U.S. Treasury yield rose by 4 basis points in the short term, narrowing the daily decline to 11 basis points, trading at 4.72%. The 10-year benchmark bond yield's decline narrowed to 11 basis points, returning to 4.29%.

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The U.S. Dollar Index's decline narrowed to 0.7% to 104.50, and spot gold's gains narrowed to 0.5%, losing the $2,330 integer level or falling by less than $10 in the short term.

A few minutes before Federal Reserve Chairman Powell's press conference, major asset classes essentially erased the short-term changes brought about by the decision statement. U.S. stock indices erased short-term declines, U.S. Treasury yields were still down 12 basis points for the day, the U.S. Dollar Index was still down 0.7%, and spot gold once again approached $2,330. Some analyses suggest that after the Federal Reserve's statement reevaluated the "moderate" progress made in cooling inflation, the stock market maintained its upward trend.

During Powell's press conference, the Dow Jones Industrial Average turned negative again, and the gains in other U.S. stock indices narrowed. U.S. Treasury yields' declines quickly narrowed, with the two-year U.S. Treasury yield falling by less than 9 basis points for the day, returning to 4.75%, and the 10-year benchmark bond yield falling by 10 basis points, returning to 4.30%. The U.S. Dollar Index fell by 0.6%, trading at 104.60, and spot gold's gains narrowed to 0.3%, approaching $2,320.

Powell stated that the stagnation in inflation progress in the first quarter means that a longer wait is needed on the issue of rate cuts.

Before the Federal Reserve's decision was announced, the U.S. consumer inflation data for May, released earlier in the day, showed a better-than-expected overall cooling, leading the market to expect the Federal Reserve's first rate cut to be brought forward to September, significantly raising risk appetite, and causing a substantial plunge in the U.S. dollar and U.S. Treasury yields:The S&P 500 index and the technology stock-heavy Nasdaq both opened at new highs, with the S&P rising over 1% and breaking through 5,400 points, while the Nasdaq climbed by more than 300 points or about 2%. The Dow Jones Industrial Average (DJIA) initially rose by over 370 points or about 1%, briefly surpassing 39,000 points, but the gains narrowed significantly before noon.

Five minutes before the decision was announced, the S&P 500 maintained a 1% gain, the Nasdaq was up 1.8%, the Russell small-cap index rose 2.6%, all hovering near their daily highs, while the Dow's gains narrowed to 0.1%.

U.S. Treasury yields plummeted to a ten-week low, with the two-year yield, which is more sensitive to monetary policy, falling the most by 16 basis points to 4.67%, the lowest since early April, and the ten-year bond yield dropped by over 14 basis points to 4.25%, the lowest since April 1st.

Five minutes before the decision was announced, the two-year U.S. Treasury yield fell by 14 basis points and broke below 4.70%, while the ten-year bond yield also dropped by 14 basis points to 4.26%.

The U.S. Dollar Index (DXY), which measures the dollar against a basket of six major currencies, fell by as much as 0.9% to 104.26, breaking below the 105 threshold, erasing most of the gains since last Friday, ending a three-day winning streak, and moving away from a four-week high. The euro and the British pound both rose by over a hundred points against the dollar, and the Japanese yen gained 1%.

Spot gold rose by nearly $25 or over 1%, briefly breaking through $2,340, recovering nearly half of the losses since last Friday, while spot silver climbed by over 3% and broke through the $30 mark, moving away from a four-week low.

Five minutes before the decision was announced, the U.S. Dollar Index was still down 0.8% at 104.37, and spot gold was up 0.8% at $2,334, holding above the $2,330 mark.