Dow Jones drops 163 points after Fed signals no interest rate cuts

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Republicans in Congress surely share the president's desire to avoid a recession, but they're also wary of a politicized Fed, which Trump surely would not hesitate to continue to pressure to cut rates even if that meant spiking inflation. Palladium gained 0.1 percent to $1,353.60, having touched its lowest since January 25 at $1,309.67 in the previous session.

The Fed will keep rates at 2.25 percent to 2.5 percent, stating the economy rose at a solid rate, but that inflation fell below its 2 percent target.

The policy statement, and particularly Powell's insistence the Fed saw no compelling reason to consider a rate cut in response to weak inflation, prompted a modest selloff in stock markets and pushed bond yields higher. At one point, he declined to say whether some investors are misguided in expecting the USA central bank to trim interest rates this year, something traders have been betting will happen before year's end.

"We think our monetary policy stance is in a good place", Powell said. For all the intense political pressure to ease policy and the mixed growth/inflation data, the US central bank held the line on Wednesday and refused to signal anything other than it was still on pause. "And you can argue the Fed, based on the press conference comments yesterday, doesn't seem to be in a rush to cut rates".

The US stock market has been riding high this year after mounting a big comeback from a steep slump at the end of 2018.

The central bank has tightened policy nine times since December 2015, moving from zero in the aftermath of the global financial crisis to the current range of 2.25 per cent to 2.5 per cent.

"While the FOMC's "patient" guidance in determining future adjustments to policy remained, the statement's characterization of economic conditions suggests that Fed officials are not rushing to dismiss recent weakness in consumer spending and business investment as transitory", said Bloomberg economists Carl Riccadonna and Yelena Shulyatyeva. The most recent statement notes that core inflation, which excludes food and energy, is running below the Fed's 2 percent target.

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But NAB's Ray Attrill believes the local currency might fall under 70 USA cents "were the RBA [Reserve Bank] to cut rates next week".

US crude was last off 27 cents at $63.32 a barrel while Brent slipped 33 cents to $71.86.

The economy expanded at a 3.2 per cent annualized pace from January to March, boosted by exports and inventories growth.

Powell said in a press conference that while the Fed would be anxious if inflation ran persistently below its target, there was reason to believe that the recent weakness in price growth could prove to be transient.

"It seems like Carney, along with everyone else, is waiting for more clarity on when and if the United Kingdom is leaving the European Union", said Nancy Curtin, Chief Investment Officer of Close Brothers Asset Management.

"We don't expect much further sustained depreciation of the Australian dollar", said Commonwealth Bank's chief currency strategist Richard Grace.

Asia trading had been thinned by holidays in Japan and China but Hong Kong and Korea's stocks gained after CNBC reported the US and China could announce a long-awaited trade deal by May 10, as Chinese Vice Premier Liu He heads to Washington.

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