LIVE MARKETS-Fed holds steady, cites risks; stocks weaken

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FED HOLDS STEADY, CITES RISKS; STOCKS WEAKEN

The Federal Reserve held interest rates steady on Wednesday but said the risks of both higher inflation and unemployment had risen, further clouding the economic outlook as the U.S. central bank grapples with the impact of Trump administration tariff policies.

The economy overall has "continued to expand at a solid pace," the Fed said in a policy statement, attributing a drop in first-quarter output to record imports as businesses and households rushed to front-run new import taxes.

Based on interest rate probabilities, about 81 basis points of cuts are now expected through year end vs 78 bps just before the statement. With this, stocks have weakened.

The S&P 500 index .SPX, which was up around 0.1% about a minute before the statement was released, is now down around 0.2%.

Indeed, in the 20 minutes or so since the statement came out all S&P 500 sectors have weakened slightly with communication services .SPLRCL off just over 0.5% over this short period, down the most.

The U.S. 10-Year Treasury yield US10YT=RR, which was around 4.28% just before the statement was released, is now around 4.27%.

Regarding the Fed's statement, Brian Jacobsen, chief economist at Annex Wealth Management, in Menomonee Falls, Wisconsin, said:

"The Fed statement was a statement of the obvious. They gave roughly equal airtime to the threats to growth and inflation, so that tells us we need to wait and see how the data shake out between now and the June meeting before deciding whether they're going to prioritize keeping inflation expectations contained or to address any hit to growth."

Jacobsen added, "The Fed isn't being complacent, twiddling their thumbs, they're like the rest of us: monitoring things vigilantly."

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

(Terence Gabriel, Chuck Mikolajczak)

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