Stocks Get Relief Rally After Fed Rate Decision: Closing Bell Analysis

Stocks climbed and bond yields fell as Jerome Powell calmed tariff-obsessed investors, signaling the Federal Reserve saw no need for drastic action in the face of Donald Trump’s trade war.

After central bankers held monetary policy steady, as expected, Powell was measured in his assessment of how the president’s actions might shape the economy, citing the potential for the impact of tariffs on inflation to be “transitory.”

The jump in stocks, the biggest for any Fed day since July, follows a bruising four-week stretch in which the S&P 500 slid into a correction. Treasuries saw an abrupt reversal, with two-year yields sinking below 4%.

After an epic bout of cross-asset volatility, Powell threaded the needle. His calibrated tone on recession risk – stating it was not “not high” – soothed nerves among stock investors. Meantime, the central bank’s move to trim growth assessments gave fuel to the bond rally, with traders and the Fed now aligned on the rate-cut outlook this year.

“Powell came in and gave a pretty dovish performance in the sense of, ‘We got this, we’re in a good place, we can afford to wait, we’ll see how it goes, we’re gonna get the job done’,” said Bill Dudley, the former president of the New York Fed, on Bloomberg Television. “He was pretty reassuring to people that this was all quite manageable.”

The Fed also said it will start shrinking its balance sheet at a slower pace starting next month, reducing the amount of bond holdings it lets roll off every month.

“The Fed indirectly cut rates today by taking action to reduce the pace of runoff of its Treasury holdings,” said Jamie Cox at Harris Financial Group. “This paves the way for the Fed to eliminate runoff by summer, and, with any luck, inflation data will be in place where reducing the Federal Funds rate will be the obvious choice.”

The S&P 500 rose 1.1%. The Nasdaq 100 gained 1.3%. The Dow Jones Industrial Average added 0.9%.

The yield on 10-year Treasuries declined four basis points to 4.25%. The dollar pared its advance to 0.2%.

Comprehensive cross-platform coverage of the U.S. market close on Bloomberg Television, Bloomberg Radio, and YouTube with Alix Steel, Scarlet Fu, Carol Massar and Tim Stenovec.

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