US stock indices remained largely unchanged on Wednesday as Federal Reserve Chair Powell reiterated a “wait-and-see” approach during his press conference. Powell acknowledged positive economic aspects, such as the US labour market nearing full employment and mostly healthy inflation figures.

Despite these strengths, he emphasised the need for the Federal Open Market Committee (FOMC) to observe how the economy adjusts to the Trump administration’s tariff policy. The FOMC maintained the fed funds rate at 4.25% to 4.50%, marking the third consecutive pause.

Tariff Rate Considerations

Powell noted the frequent changes in tariff rates require the central bank to await policy consistency before implementing major changes. While he acknowledged rising risks of higher unemployment and inflation, he indicated these might not significantly impact economic data.

The NASDAQ fell 0.35% before the rate decision, but saw fluctuations following Powell’s comments and the Trump administration’s tariff considerations. The Dow Jones Industrial Average increased from a 0.3% to a 0.8% gain, while the S&P 500 experienced minor shifts between loss and gain. Powell reiterated the central bank’s readiness to observe developments.

Powell’s remarks, delivered in his usual measured tone, made it clear that policymakers are in no rush to commit to adjustments without clarity on external shocks — notably the unpredictable tariff measures that continue to materialise. His highlighting of these policy swings signals that monetary restraint remains the preferred stance, not because conditions demand it immediately, but because the uncertainties leave little confidence for firm decisions.

Labour strength was mentioned as a supporting pillar — and for good reason. Employment metrics, showing steady participation and minimal slack, suggest that demand-side weakness isn’t the immediate worry. Inflation, while not ideal, doesn’t appear to be running out of control either, at least not based on the standard indicators. From where we sit, that mix removes pressure on the central bank to deliver changes, whether up or down.

Fiscal Policy Transmission

What does require a sharper eye is the transmission of fiscal policy into consumption and inventory data. With tariffs being adjusted almost month to month, corporate managers are likely to pass uncertainty into cost structures. This doesn’t show up right away in consumer behaviour, but we already see parts of the equity market rotating in anticipation of possible margin pressure — particularly in manufacturing-heavy components and consumer goods with foreign input reliance.

Equity indices felt this edge. Although the NASDAQ recoiled before the Fed’s decision, the bounce post-remarks — albeit mild — tells us that traders are pricing in policy caution as a form of stability. Meanwhile, blue-chip stocks on the Dow responded well, perhaps buoyed by the view that industrials may see more support than squeeze if tariffs shift temporarily inwards. It’s also worth flagging that sector disparity continues to widen, with certain S&P 500 segments oscillating within tighter ranges than usual.

The third pause at the current funds rate presents a stable floor for those trading near-term interest rate futures. If policy rates move, they are unlikely to do so before signs emerge that the tariff burden is either stabilised or withdrawn. Until then, options activity should favour defined ranges, and strategies should lean toward betting against extreme moves unless prompted by fresh data. Knock-on effects from Powell’s mention of unemployment and inflation risks, although noted mildly, could gain weight if economic prints show any deviation from expectations in the coming two quarters.

We’re watching for volatility to remain compressed, absent a shock — external or domestic. But with trade policy and monetary trimming tied so closely, the rhythm of options contracts may start to dance to regulatory announcements as much as traditional market indicators. That’s where tactical flexibility becomes key. Calendar spreads may gain utility in an environment where timing policy reaction is less about quarter-to-quarter data and more about day-to-day tweets and ensuing market recalibrations.

The message for now: hold the lever steady, but be ready to shift gears quickly if external noise becomes internal motion.

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