Decoding International / Fed Decision Brings Surprises, Not Shocks

The Federal Reserve's May 1st decision to keep interest rates unchanged met expectations, with a hawkish stance on interest rate policy but a dovish approach towards reducing the balance sheet. The Fed's policy statement emphasized ongoing higher-than-expected inflation and adjusted economic activity language to reflect more robust growth. Despite a hawkish tone suggesting longer high interest rates, the actual tapering of the balance sheet was less aggressive than anticipated, reducing treasury bond redemptions to $25 billion a month, slightly below market expectations. Fed Chairman Powell's remarks were not overly hawkish and aimed to reassure the market, emphasizing the unlikelihood of an imminent rate hike and addressing concerns about stagflation. Overall, the Fed's decisions and Powell's comments provided surprises but did not shock the market, offering reassurance to investors.