In a dramatic turn of events, major tech stocks, including Meta, Microsoft, and Tesla, experienced a downturn in after-hours trading. Investors closely examined these companies' earnings reports, searching for any indications of reduced investments in artificial intelligence. This unease was further reflected in the broader market, as the S&P 500 and Nasdaq indices dipped following the Federal Reserve's latest policy decision. The Fed's cautious approach, amidst rising inflation concerns, has left investors on edge.
Meanwhile, President Trump set the stage for international economic discussions at the Davos World Economic Forum by calling for an immediate global drop in interest rates. He cited falling oil prices as a driving force behind his demand. However, the Federal Reserve's recent meeting concluded without offering clear guidance, particularly in the foreign exchange trading world, where inflation remains a pressing issue.
Fed Chair Jerome Powell's post-meeting comments emphasized a careful pause in policy adjustments. Powell stated:
"We do not need to be in a hurry to adjust our policy stance." – Jerome Powell
This stance is seen as a response to the economic impact of Trump's trade tactics. The Federal Open Market Committee's conclusion of a "hawkish hold" dashed hopes for imminent rate cuts, reinforcing the Fed's commitment to its dual mandate.
Across the Atlantic, the European Central Bank (ECB) is expected to adopt a dovish stance, potentially widening the EUR-USD swap rate and putting additional pressure on the Euro. The ECB aims to support economic activity in the common bloc as recent data indicates stagnation. The ECB is anticipated to trim rates by 25 basis points, lowering the policy rate to 2.75%.
Despite these developments, the U.S. economy maintains a degree of resilience. Imminent GDP figures are projected to confirm last year's growth at 2.8%, with unemployment slightly above 4% and core inflation hovering around 3%. This backdrop provides context for the Fed's decision-making process.
Tech stocks faced added pressure as Wall Street reevaluated the AI sector's potential amid competition from DeepSeek, a Chinese upstart asserting it can deliver significant AI breakthroughs with minimal resources. This reevaluation contributed to market volatility.
In the cryptocurrency space, Solana's price rebounded by 3% on Wednesday, ending a three-day losing streak. This positive market reaction came in response to the Fed's rate pause decision, providing a brief respite for investors.
Concerns about President Trump's protectionist policies and their potential global economic fallout continue to cast a shadow over markets. Softer U.S. bond yields and subdued USD price action have provided some support for gold prices.