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Fed Holds Rates Unchanged: Traders Brace For Powell's Likely Final Presser

BY Benzinga | ECONOMIC | 02:07 PM EDT

The Federal Reserve held the benchmark federal funds rate at 3.50-3.75% on Wednesday, in what is widely expected to be Chair Jerome Powell‘s final policy decision before passing leadership to Kevin Warsh on May 15.

Governor Stephen Miran again dissented in favor of a quarter-point cut.

The Fed flagged that “inflation is elevated, in part reflecting the recent increase in global energy prices,” marking a hawkish turn from the previous “somewhat elevated.”

The Committee also stressed that “developments in the Middle East are contributing to a high level of uncertainty about the economic outlook.”

Notably, three members ? Beth M. Hammack, Neel Kashkari, and Lorie K. Logan ? backed holding rates but opposed adding any easing bias to the statement at this stage.

Powell's farewell press conference is set for 2:30 p.m. ET, where investors will be watching closely for any final signal on the rate path before the policy baton changes hands.

Market Reactions

Traders repriced the rate path in a more hawkish direction. Fed funds futures have nearly erased expectations for cuts this year and now imply about a 25% probability of a 25-basis-point hike by April 2027.

The S&P 500 ? as tracked by the SPDR S&P 500 ETF Trust (SPY) ? was down 0.3% at 2:20 p.m. ET, extending session lows in the wake of the Fed statement.

WTI crude ? as tracked by the United States Oil Fund (USO) ? surged more than 7% to $107, as persistent Middle East tensions kept risk premia elevated.

Interest Rate Probabilities Based On Fed Futures

<figure class="wp-block-table is-style-stripes">
Meting Date3.25%-3.50%3.50%-3.75% (current)3.75%-4.00%
29/04/20260,00%100,00%0,00%
17/06/20261,22%98,78%0,00%
29/07/20265,50%94,50%0,00%
16/09/20269,50%90,50%0,00%
28/10/20269,50%90,50%0,00%
09/12/20265,69%94,31%0,00%
27/01/20270,00%96,50%3,50%
17/03/20270,00%86,21%13,79%
28/04/20270,00%75,50%24,50%
<figcaption class="wp-element-caption">Source: CME FedWatch Tool</figcaption></figure> <figure class="wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio">
</figure>

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In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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