Fed's dovish message douses rate-hike bets, boosts odds of cut

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"Given the renewed weakness for the dollar, if the jobs and wages data were to disappoint expectations badly then this will further reinforce the Fed's cautious outlook on the economy and reduce the possibility of rate increases even further", said Fawad Razaqzada, market analyst at Forex.com in London. Since the beginning of the year, the value of US stocks has increased by $2.1 trillion, or 7.74%, according to Wilshire Associates.

United States stocks rallied, Treasury yields fell and the dollar sank as investors digested the new message from the central bank, which marked a broader shift toward sustaining the expansion - rather than preventing any overheating - and follows months of criticism from President Donald Trump for raising rates too much. Asked what would prompt another rate hike, Powell said: "I would want to see a need for further rate increases, and for me, a big part of that would be inflation".

The blue-chip index ultimately closed up 434.90 points, or 1.8 percent, at 25,014.86. The S&P 500 was up 1.6%, and the Nasdaq was up 2.2%.

USA stock markets extended their gains following the Fed's statement, and bond yields dropped as investors gauged the language adjustment as signaling a low probability of additional rate hikes any time soon.

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Investors liked what they heard. Dollar suffered another bout of bearish influence soon after Fed update as Fed Chair Jerome Powell during his post-FOMC conference speech commented that balance sheet shrinking activity would be dependent on future economic conditions in relations to WSJ reports from earlier this week.

"In the light of global economic and financial developments and muted inflation pressures, the committee (FOMC) will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes", the policy statement read.

The language used in the FOMC statement, keeping the benchmark interest rate in a range of 2.25 percent to 2.5 percent, reflected the increasing sense that the U.S. economy may have peaked.

"We are now facing a somewhat contradictory picture of generally strong U.S. macroeconomic performance, alongside growing evidence of cross-currents", Powell told reporters.

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"The case for raising rates has weakened somewhat", Powell told reporters Wednesday at the conclusion of the Federal Open Market Committee's first two-day meeting of 2019.

The euro gained 0.39 percent to $1.1475.

"The market can expect the statement to acknowledge the new theme of patience, which should mean that the gradual rate hiking forward guidance of previous statements is tempered down", Mohammed Kazmi, portfolio manager at UBP wrote in a note.

"Any positive news from the US-China trade negotiations or a softening of the divisive rhetoric coming out of DC should also bolster share prices".

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