(Bloomberg) — Stocks climbed and bond yields fell as Jerome Powell calmed tariff-obsessed investors, signaling the Federal Reserve saw no need for drastic motion within the face of Donald Trump’s trade war.
Most Read from Bloomberg
After central bankers held monetary policy regular, 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 largest for any Fed day since July, follows a bruising four-week stretch wherein the S&P 500 slid right into a correction. Treasuries saw an abrupt reversal, with two-year yields sinking below 4%.
“Start making T-shirts: ‘Transitory: We’re so back!’” said Christian Hoffmann at Thornburg Investment Management. “The market will read this as dovish on the margin, with the Fed not overtly concerned with the economy or inflation. Stocks and bonds rejoice.”
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 amongst 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 12 months.
“Powell got here in and gave a reasonably dovish performance within the sense of, ‘We got this, we’re in an excellent place, we will afford to attend, we’ll see the way it goes, we’re gonna get the job done’,” said Bill Dudley, the previous president of the Recent York Fed, on Bloomberg Television. “He was pretty reassuring to those who this was all quite manageable.”
The Fed will even start shrinking its balance sheet at a slower pace starting in April, reducing the quantity of bond holdings it lets roll off every month.
“The Fed not directly cut rates today by taking motion to cut back the pace of runoff of its Treasury holdings,” said Jamie Cox at Harris Financial Group. “This paves the best way for the Fed to eliminate runoff by summer, and, with a bit of luck, inflation data shall be in place where reducing the Federal Funds rate shall be the apparent selection.”
The S&P 500 rose 1.1%. The Nasdaq 100 gained 1.3%. The Dow Jones Industrial Average added 0.9%. Megacaps like Nvidia Corp. and Tesla Inc. led market gains. Boeing Co. jumped after saying money outflows are prone to be smaller than forecast this quarter.
The yield on 10-year Treasuries declined 4 basis points to 4.24%. The dollar pared its advance to 0.2%.
Stocks rallied despite changes to Fed forecasts that might be viewed as bearish for equities, amongst them a tamping down of growth expectations in 2025 and a better estimate of inflation.
That’s since the correction in stocks already accounted for a significantly worse economic backdrop than existed when the Fed last met, in keeping with Amanda Lynam at BlackRock.
“A variety of that was baked in,” Lynam said on Bloomberg Television. “We’ve had such a bruising few weeks within the equity market. Most forecasters have reflected lower growth and better inflation, and that’s a part of what’s driving us here.”
Heading into the Fed meeting, money managers pared risk en masse and now have scope to re-build their equity positions from the lows. The most recent Bank of America Corp. survey showed investors cut holdings of US equities on the fastest pace on record within the grip of the tariff-spurred turmoil hitting world markets.
“They modified the language enough and the dots enough that a market, that was possibly on the lookout for a hawkish Fed, felt the necessity to buy stocks and bonds,” said Peter Tchir of Academy Securities.
To Bret Kenwell at eToro, while many observers are focused on the word “transitory” from today’s Fed commentary — triggering flashbacks to 2021 when rampant inflation ultimately forced the Fed to aggressively raise rates — perhaps the word of the day needs to be “uncertainty.”
“Investors could also be wondering why the Fed is forecasting two rate cuts in 2025 in the event that they imagine inflation shall be higher this 12 months than they did three months ago,” Kenwell said. “Despite Powell arguing that the economy is powerful overall, the Fed reduced its GDP growth expectations for 2025 too, allowing them to depart rate-cut expectations unchanged in the meanwhile.”
While stocks are rebounding from a clearly oversold condition, Kenwell says investors should regulate bonds.
“If Treasury yields proceed to maneuver lower, we could see an extra rally in dividend stocks, utilities and other yield-sensitive assets,” he noted. “Further, if tech can proceed to rebound — even when it’s only a short-term bounce — it could fuel a bigger overall rebound in US stocks given the disproportionately large decline we’ve seen on this group.”
A few of the major moves in markets:
Stocks
-
The S&P 500 rose 1.1% as of 4 p.m. Recent York time
-
The Nasdaq 100 rose 1.3%
-
The Dow Jones Industrial Average rose 0.9%
-
The MSCI World Index rose 0.9%
Currencies
-
The Bloomberg Dollar Spot Index rose 0.2%
-
The euro fell 0.4% to $1.0898
-
The British pound was little modified at $1.2998
-
The Japanese yen rose 0.3% to 148.88 per dollar
Cryptocurrencies
-
Bitcoin rose 4.2% to $85,489.51
-
Ether rose 6.6% to $2,031.92
Bonds
-
The yield on 10-year Treasuries declined 4 basis points to 4.24%
-
Germany’s 10-year yield was little modified at 2.80%
-
Britain’s 10-year yield declined one basis point to 4.63%
Commodities
This story was produced with the help of Bloomberg Automation.
–With assistance from Lu Wang, Isabelle Lee, Sujata Rao, Levin Stamm, Margaryta Kirakosian, Winnie Hsu and John Viljoen.
Most Read from Bloomberg Businessweek
©2025 Bloomberg L.P.