On January 29th, a pivotal event shook the financial sector in the United States – the Federal Reserve Board concluded its two-day meeting concerning monetary policyThe outcomes were significant, as the Fed decided to maintain the target range for the federal funds rate at 4.25% to 4.5%. This decision marks a critical moment, being the first pause in interest rate cuts since September 2024 when the Fed commenced its easing cycle, resonating with prevailing market expectations.

Upon the release of this announcement, the financial markets reacted swiftly and vehementlyMajor U.S. stock indices all faced declines, reflecting a palpable shift in market sentimentThe Fed’s decision statement featured alterations in key phrases that hinted at new policy directionsNotably, the phrase indicating “progress towards achieving the inflation goal” was omitted, replaced only by the observation that “inflation levels remain slightly elevated.” Additionally, changes in language surrounding the labor market emphasized low unemployment rates and robust market conditions

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These adjustments were interpreted by market participants as hawkish signals, suggesting that the Fed would adopt a more cautious stance regarding monetary policy.

In response to the statement's revisions, Federal Reserve Chair Jerome Powell elaborated during a subsequent addressHe remarked, “We edited some language in the statement, but the removal of the progress statement regarding the inflation target does not signify any specific message.” Powell proceeded to describe the current state of the U.S. economy, asserting that it remains robust overallAlthough the labor market appears to have cooled compared to previous data, it is still considered stableIn terms of balance sheets, Powell noted that reserve levels remain ample, and the Fed is vigilantly monitoring various signals related to reserves to ensure the stability of the financial systemHe also indicated that financial conditions generally appear slightly accommodative, with banks demonstrating sufficient capital and households maintaining sound financial standings; however, several indicators suggest that asset prices are at elevated levelsConsequently, he highlighted the need for continued scrutiny of asset prices, leverage levels, and funding risks, which could potentially affect the stability of economic growth.

Reflecting on the monetary policy meeting held in December 2024, Fed officials had projected that rate cuts would significantly decelerate in 2025, potentially amounting to a 75 basis-point reduction throughout the yearNevertheless, a series of fluctuations in economic and employment metrics prompted a seismic shift in market expectationsCurrently, the consensus among market participants is that the Fed might only implement a single rate cut in 2025; in some extreme scenarios, there may be no rate cuts at all throughout the year

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This stark shift in market sentiment illustrates the profound influence of economic data on market confidence and perceptions regarding the trajectory of Fed policy.

As a result of the Fed's recent decision and the accompanying changes in market expectations, the U.S. stock market experienced significant fluctuations throughout the dayThe three principal indices all fell sharply, visibly impacting investor emotionsBy the close on Wednesday, the Dow Jones Industrial Average was down 0.31% to 44,713.52 points; the S&P 500 index dropped 0.47% to 6,039.31 points; and the Nasdaq fell 0.51% to 19,632.32 pointsAmong individual stock performances, technology giants mostly saw shares declineFor example, Microsoft decreased by 1.09%, Amazon fell by 0.45%, and notable player in AI, Nvidia, witnessed a 4.10% drop, while Tesla slipped 2.26% and Intel lost 0.25%. Interestingly, some tech stocks defied the trend – Apple gained 0.46%, Google - A rose by 0.06%, Meta increased by 0.32%, and AMD surged by 2.79%. Notably, the semiconductor sector presented a divergence in its trajectory; ASML climbed over 4%, buoyed by a performance report indicating that its order volume for the fourth quarter of 2024 greatly exceeded expectationsASML's CEO commented that the emergence of DeepSeek is a positive development, stating, “For anyone, reducing costs is beneficial for ASML, as lower costs mean more applications for AI, and more applications equate to more chips.” This perspective subtly underscores the positive impact of advancements in the AI sector on the semiconductor industry.

When approached regarding the likelihood of a rate cut in March, Powell reiterated that there is no rush to make a decision

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