What the Fed didn’t say is what mattered to traders

When it comes to the latest Federal Reserve decision, it’s more what the central bank didn’t say than what it did that moved the market. The Fed held rates steady in a move almost universally anticipated by investors Wednesday. However, it was the removal of a key phrase in the very first paragraph of the post-meeting statement that raised eyebrows. The Fed eliminated the line that inflation “has made progress toward” its 2% target — which was present in the December statement — and left just the last part of the sentence that states inflation remains “somewhat elevated.” Stocks fell to session lows after the decision, as investors took note of omission suggesting the central bank has officially hit the pause button on easing interest rates until it sees further progress on inflation. Fed funds futures pricing showed a slight increase of no rate change in 2025 following the meeting, according to the CME FedWatch Tool . .SPX 1D mountain S & P 500 “In essence, the Fed took the active language out of the statement — ‘made progress’ dropped for inflation and ‘generally eased’ was removed for employment,” wrote Ian Lyngen, head of U.S. Rates Strategy at BMO Capital Markets Fixed Income Strategy team. “It’s a reasonable interpretation that the downward trajectory has stalled.” “The market is already jumping on the omission of inflation progress from the FOMC statement as a hawkish signal,” wrote Seema Shah, chief global strategist at Principal Asset Management. “Certainly, the plateauing in inflation improvement means that a rate cut is currently not a desperate requirement, so a pause makes sense.” To be sure, in response to questions from reporters at the presser, Fed Chair Jerome Powell said the change in the post-meeting statement was done more for clarity than to convey a change, saying it was a “language cleanup.” Claudia Sahm, New Century Advisors chief economist and former Fed economist, said on CNBC’s “Power Lunch” Wednesday that the changes in the statement conveyed nothing about inflation that investors didn’t already know. “We’ve got to be real careful today not to make news out of what is not news,” Sahm said. “Coming into this, we knew what’s left: inflation. That’s what’s left.” Still, for investors, the market response made one thing clear, which is that a data-dependent Fed has made the path forward for monetary policy for 2025 more murky. “The reality is that the Fed is simply trying to respond to the data and the new administration’s policies as they unfold. At times like these, when government policy – particularly tariff policy – is so uncertain, they do not have a forecasting edge,” Principal Asset Management’s Shah wrote. “Keeping policy rates on hold until a clear direction starts to emerge is sensible,” Shah continued. “But make no mistake, if next month brings a second consecutive soft inflation print, coupled with a slight weakening in jobs growth, we may start to hear a renewed dovish tone to Fedspeak.” — CNBC’s Sean Conlon and Pia Singh contributed to this report.