LIVE MARKETS-Fed projects two rate cuts this year, stocks strengthen

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FED PROJECTS TWO RATE CUTS THIS YEAR, STOCKS STRENGTHEN

U.S. central bankers on Wednesday signaled they are likely to deliver two quarter-point interest-rate cuts later this year, the same median forecast as three months ago, even as they forecast slower economic growth and higher inflation.

But there was substantial disagreement among policymakers about the appropriate path of policy, reflecting uncertainty over how the Trump administration's policies on issues such as trade will play out in the real economy, and how the Federal Reserve should respond.

Based on interest rate probabilities, 61.8 basis points of cuts are now expected through year end. With this, stocks have strengthened modestly.

The S&P 500 index .SPX, which was up around 0.4% in the moments before the statement was released, is now up around 0.8%.

Of note, in the 20 minutes or so since the statement came out, all S&P 500 sectors have strengthened. Tech .SPLRCT, which has added 0.5% over this short period, is posting the biggest increase.

The U.S. 10-Year Treasury yield US10YT=RR, which was about 4.32% just before the statement, is now around 4.28%.

Regarding the Fed's statement, Emily Roland, co-chief investment strategist at John Hancock Investment Management, in Boston said:

"There is a whiff of stagflation to this. You're seeing the Fed revising down their estimates for growth and revising up modestly their expectations for inflation."

Roland added "the summary of economic projections is roughly in line with the direction of travel for the way the data have been coming in. So I don't think it's a huge surprise to market at this point.

So why did the market go up?

Roland's take is "There was some whispers of the Fed potentially taking one cut out based on the fear of inflation. Even though the report came in as expected there was a lingering concern the Fed could look more hawkish."

Markets now await Fed Chair Powell's press conference at 2:30 p.m. EDT.

(Terence Gabriel, Sinéad Carew)

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