The day offered some solace to stocks, which have tumbled amid Trump’s on-again, off-again tariff threats and growing fears of a recession, as the S&P 500 and tech-heavy Nasdaq Composite closed up 1.1% and 1.4%, respectively. Both indexes had recently entered correction territory after dropping more than 10% from all-time highs in mid-February, wiping out gains from the market rally after Trump’s election win in November. 

For the Fed, “uncertainty” was the word of the day, said Chris Diaz, a partner and co-head of the global taxable fixed income team at Baltimore-based investment firm Brown Advisory, who noted Powell used the term at least 10 times. 

Just as they did in December, Fed policymakers penciled in a median of two interest rate reductions in the famous “dot plot,” which shows where individual officials see rates headed. Eight of the 19 participants had rates unchanged or being cut only once, however, up from just four who maintained that hawkish posture at the end of last year. Nonetheless, Diaz said, investors appeared more convinced the Fed is particularly attuned to concerns about growth. 

“That, for a riskier asset class [like] stocks, I think, is a much more welcome message than, ‘We’re not going to do anything, or maybe we’ll raise rates because we don’t know what’s going to happen to inflation,’” Diaz said. 

Hedge fund and ETF manager Jay Hatfield, the CEO of Infrastructure Capital Advisors, said the market also reacted to the Fed’s announcement that it would slow the pace of so-called quantitative tightening, or the process of offloading assets from the central bank’s balance sheet. Many investors interpret that (wrongly, he argued) as a dovish signal, he said. In his press conference, Powell said the move was simply a response to increased tightness in money markets. 

“This action has no implications for our intended stance of monetary policy and should not affect the size of our balance sheet over the medium term,” he said. 

Fed expects slightly lower growth, higher inflation 

Treasury bonds also rallied slightly despite the Fed confirming it would not lower the federal funds rate, currently sitting between 4.25% and 4.5%, which banks charge when lending to their peers overnight. The market is pricing in two to three cuts in 2025, according to the CME Group’s Fedwatch tool. If they do come to pass, however, investors will hope they are “good news” cuts enabled by easing inflation concerns and not an emergency response to a so-called Trumpcession.

Many investors believed the new administration would prioritize presumably pro-growth (and potentially inflationary) aspects of Trump’s agenda like tax cuts and deregulation. Instead, the new administration appears fixated on overhauling America’s trade relations, and the jury is out whether tariffs will ultimately reignite inflation or slow growth. Then there’s the worst-case scenario of stagflation. 

Powell, meanwhile, suggested the broad economic impact of the mass government layoffs initiated by Elon Musk’s Department of Government Efficiency also remains unclear. 

“As growth prospects falter and inflation remains sticky, we should expect investors to get more worried about stagflation,” Jeffrey Roach, chief economist for broker-dealer LPL Financial, wrote in a note after the Fed’s announcement. 

Goldman Sachs recently downgraded its GDP growth projection to 1.7%, the first time the investment bank’s forecast has fallen below Wall Street’s consensus in two and a half years, while raising expectations for inflation. 

Fed officials, meanwhile, also trimmed their growth projection to 1.7%, down from 2.1% in December, and raised the forecast of its preferred inflation metric from 2.5% to 2.7%—above the central bank’s 2% target. 

Of course, not all market participants are celebrating the Fed’s decision. Hatfield believes the Fed has kept monetary policy overly tight amid what he sees as clear signs of economic weakness. He compared the Fed’s current hesitancy to cut rates to the central bank’s slow response when inflation hit four-decade highs in the aftermath of the COVID-19 pandemic, which has been heavily criticized. 

But David Andolfatto, a former senior VP at the Federal Reserve Bank of St. Louis, said the Fed faces an impossible task trying to please markets. Lambasting the Fed for being cautious amid tremendous uncertainty, he said, is like calling out a driver who chooses to take it slow on the roads during a fierce storm. 

“You can’t see the potholes,” Andolfatto, who now chairs the University of Miami’s economics department, said Tuesday. “You got to slow down. You might turn right, you might turn left, you might make a mistake. But, I mean, you’re trying to do the best that you can given the lack of clarity in the storm.”

Investors are hoping the clouds will clear up soon.