Federal Reserve's Rate Hold Briefly Rattles ETF Markets
The Federal Reserve's decision to hold interest rates steady Wednesday initially sent ETFs tumbling before markets staged a comeback, with the Invesco QQQ Trust (QQQ) trimming losses to just 0.2% by late afternoon.
The Fed's move to maintain rates at 4.25-4.5% highlights the ongoing balancing act between controlling inflation and supporting economic growth, a dynamic that continues to shape ETF investor strategies across sectors from bonds to equities, particularly as markets adjust expectations for future rate cuts.
According to Kent Thune, etf.com research lead, the Fed's decision was widely anticipated, with the CME FedWatch tool forecasting a 99.5% chance of a rate pause today.
The SPDR S&P 500 ETF Trust (SPY) recovered from steeper losses to trade down 0.5%, while the SPDR Dow Jones Industrial Average ETF Trust (DIA) showed resilience, falling just 0.3%, according to etf.com data.
The Federal Reserve cited solid 'economic activity' and 'somewhat elevated' inflation in its decision to maintain current rates, according to the central bank's 2 p.m. ET statement.
During a press conference following today's Federal Reserve Open Committee meeting, Fed Chair Jerome Powell offered a potentially encouraging outlook, stating, 'we do expect to see further progress in inflation,' while repeatedly emphasizing a 'wait and see' approach to future policy decisions.
Treasury yields have climbed 25% higher since September when the Fed began its current easing cycle, reflecting the bond market's heightened sensitivity to rate decisions, said Thune.
The bond markets appeared to welcome Powell's subsequent press conference comments, with the iShares 20+ Year Treasury Bond ETF (TLT) trading just 0.2% lower after recovering from deeper losses.
Powell also indicated during the briefing that the economy grew about 2% in 2024 while housing activity has stabilized, suggesting the Fed's previous rate hikes have achieved their intended effect without triggering a recession that many analysts had feared earlier in the tightening cycle.Permalink | © Copyright 2025 etf.com. All rights reserved
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