Wall Street rises, falls, rises again as Fed keeps rates steady

MANHATTAN (CN) — Wall Street posted modest gains as the Iran peace deal came into focus, as the odds of an interest rate hike increased with this week’s Federal Reserve decision.

A ceasefire deal announced early in the week resulted in more than a dozen ships passing through the Strait of Hormuz Thursday. Barrels of Brent crude oil dropped to under $80, and equities spent much of the week on an upward trajectory.

The only blip came when the Federal Reserve announced Wednesday it would not change interest rates. By the closing bell on Thursday, the Dow Jones Industrial Average ended up 364 points for the week, the S&P 500 gained 69 points, and the Nasdaq netted 683 points. Markets are closed Friday due to the Juneteenth holiday.

This week marked the first Fed meeting for new chair Kevin Warsh, who had hinted during confirmation hearings to wanting to cut interest rates. However, the central bank did not budge and kept the federal funds rate at 3.5% to 3.75%.

President Donald Trump, who nominated Warsh after sparring repeatedly with his former appointee Jerome Powell, shrugged off the decision to keep rates steady. “It could happen,” Trump said. “I mean, it’s hard to believe. It just keeps a country down.”

Some other changes under Warsh confounded investors. For one, the Fed’s statement was noticeably shorter than usual, due to Warsh trying to pivot the Fed away from giving forward guidance.

“The accompanying 130-word statement was the shortest since the [Alan] Greenspan era decades ago,” EY-Parthenon Chief Economist Gregory Daco said in a statement, adding the shortened forward guidance in the statement puts a greater onus on investors to read more into the tea leaves.

In turn, that may “increase interest-rate and equity market volatility and widen the range of plausible policy outcomes between meetings,” Daco said.

Additionally, the “dot plot,” which tracks how Fed governors view future rate cuts and economic conditions, lost an important voice, as Warsh did not include his own forecast in the report. Warsh has said he intends to establish a task force to look at the Fed’s communications strategy, commenting in the past on how he views the current approach as outdated.

The latest dot plot indicates most of the Fed’s voting members expect to keep rates steady for the rest of the year, with only one of the 18 voting members favoring a rate cut and half actually favoring at least one rate hike in 2026.

Warsh also indicated he would hold fewer press conferences, and in this week’s presser following the announcement, he offered few crumbs on what he planned to do to reform the Fed beyond creating task forces to address various issues.

Earlier in the week, a strong retail sales report from the U.S. Census Bureau helped bolster markets. The report found consumers did not tighten their pocketbooks too much due to higher gas prices, with sales increasing 0.9% last month, more than double what was expected. However, the increase was driven again by a huge increase in gasoline station sales.

Daco and EY Senior Economist Lydia Boussour said in a joint statement that the data were encouraging but higher energy prices likely will “act as a tax on consumption, with some crowding out of discretionary spending likely to emerge” later this year.

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