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Investing.com - Stocks were broadly subdued after the Federal Reserve chose to keep interest rates steady, but indicated that cuts could still come this year. Investors were eyeing comments from Fed Chair Jerome Powell, who warned that the impact of heightened U.S. tariffs has yet to be felt. Elsewhere, Israel and Iran exchange fresh airstrikes, as the world waits to see if President Donald Trump will bring the U.S. into the conflict.
1. S&P 500 almost flat
The benchmark S&P 500 was broadly unchanged at the close of trading on Wednesday, as investors digested a Federal Reserve decision to leave interest rates unchanged and comments from the central bank’s Chair Jerome Powell.
Meanwhile, the tech-heavy Nasdaq Composite rose by 0.1% and the 30-stock Dow Jones industrial Average slipped 0.1%.
Hovering in the background were ongoing developments in the Middle East, where airstrikes between Israel and Iran have raised regional tensions.
Concern is also swirling around the potential involvement of the United States in the conflict, with Trump saying that he "may or may not" join in Israel’s campaign against Iran. Iranian Supreme Leader Ayatollah Ali Khamenei also rejected an earlier demand from Trump for an unconditional surrender, warning that any U.S. military intervention will be "accompanied by irreparable damage."
Financial markets on Wall Street are set to be closed on Thursday in observance of the Juneteenth holiday.
2. Iran-Israel latest
Israel and Iran exchanged fresh air bombardments on Thursday, as the world waits to see if Trump will decide to bring the U.S. into the fighting.
A major Iranian nuclear facility in Arak was struck by Israel overnight, while missiles from Iran hit an Israeli hospital, in the latest escalation of the ongoing -- and worst-ever -- conflict between the two countries.
Now entering its seventh day, the violence has seen Israel target Iranian nuclear sites, key members of its military command, and kill hundreds of people. Retaliatory attacks from Iran have killed at least two dozen civilians in Israel.
Trump told reporters on Wednesday that "nobody knows what I’m going to do" about the U.S. possibly entering the conflict. He suggested that Iranian officials wanted to come to Washington for negotiations, but flagged that "it’s a little late" for these talks.
Crucially, Trump has faced backlash from some of his most ardent supporters, who have argued that the U.S. should not become involved in a new Middle East war.
Oil prices inched higher on Thursday, spurred on by fears that the conflict could disrupt crucial crude shipping lanes.
3. Fed decision
The Fed chose to leave interest rates steady at a range of 4.25% to 4.5% following the conclusion of its latest two-day meeting on Wednesday, although official projections indicated that policymakers still expect to draw down borrowing costs this year.
In an update to its all-important "dot plot", rates are expected to slide by 50 basis points in 2025, matching prior predictions in March and December. Yet the pace of reductions next year and in 2027 was slowed, signalling that the Fed could be gearing up for a longer fight to bring inflation down to its 2% target.
Chair Jerome Powell said the impact from Trump’s sweeping tariff agenda is likely coming, and could lead to a "meaningful" uptick in consumer price growth.
Powell added that "no one holds these [...] rate paths with a great deal of conviction." Many economists have recently said that Trump’s punishing levies could refuel inflationary pressures, dent labor demand and weigh on wider activity.
Policymakers now anticipate that inflation will end 2025 at 3%, above its current level, while growth is tipped to decelerate to 1.4% and unemployment is expected to edge up to 4.5%. The projections paint a picture of relatively modest stagflation, a period of elevated prices and tepid economic activity.
4. BoE decision ahead
A busy week of central bank announcements shifts to the United Kingdom on Thursday, where the Bank of England is due to unveil its latest interest rate decision.
The BoE is expected to leave its benchmark bank rate unchanged at 4.25% at its latest meeting this week, as officials gauge recent inflation data and trade announcements between the U.S. and U.K.
On Wednesday, figures showed that inflation in Britain cooled slightly in May on an annual basis, but remained above the BoE’s medium-term target of 2.0%.
Annual consumer price inflation rose 3.4% in May, a small drop from 3.5% in April. The monthly rate ticked up by 0.2%, with the pace slipping back from a hefty 1.2% increase notched in March.
Analysts had expected the CPI to rise 3.3% on an annual basis, and 0.2% on the month.
April’s figure was elevated by the impact of increased employer costs, such as higher minimum wages and National Insurance payments, and the implications of these factors are expected to fade over time.
5. Trump touts stablecoin bill progress
Trump on Wednesday lauded a bill aimed at regulating stablecoin cryptocurrencies after it was approved by the Senate, and called for the House of Representatives to swiftly pass the bill.
Trump said in a social media post that the GENIUS Act, which sets out a regulatory framework for stablecoins, will make the U.S. a leader in digital assets. The Senate voted in favor of the bill on Tuesday, sending it to the Republican-controlled House of Representatives where it will be considered and eventually voted on. If approved by the House, the bill will be sent to Trump to be signed into law.
“The House will hopefully move LIGHTNING FAST, and pass a “clean” GENIUS Act. Get it to my desk, ASAP — NO DELAYS, NO ADD ONS,” Trump wrote in a post on Truth.Social.
The progress of the legislation through Congress comes as Trump has faced calls to make good on his promises to usher in more crypto-friendly regulations. The bill establishes a regulatory framework for stablecoin operators, dictating certain reserve requirements while also outlining monthly disclosures by the operators of their reserves.
Stablecoins are a class of crypto that are pegged in a largely fixed value to a traditional currency, usually the U.S. dollar. They are a key tool for facilitating crypto transactions, with their proponents also claiming that they can be used in traditional payments.