Wall Street Extends Relief Rally as Fed Holds, but December Hike Keeps Risk Appetite in Check

U.S. stocks advanced on Wednesday after the Federal Reserve left its target range unchanged at 3.75%-4.00%, with the S&P 500 up 0.6% and the Nasdaq-100 up 0.9%. The relief was genuine but shallow: index moves of less than a percent reflect how much of the decision had already been priced into futures and options.

Chair Kevin Warsh struck a balanced tone in his press conference, acknowledging that inflation at 3.7% year-over-year remains uncomfortably above target while insisting the committee is not on a preset course. The statement retained the language that policy is 'in restrictive territory,' though it removed a reference to 'further progress' on inflation that had appeared in the prior release.

The rate path, not the decision itself, is what markets care about. Fed funds futures priced about a 78% probability of a quarter-point hike in December, essentially unchanged from before the meeting, underscoring that traders see the October hold as a pause rather than a pivot.

Energy was the standout sector, with the S&P 500 energy group up 1.8% as Brent held above $114. Financials also gained on a steepening of the short end, while the rate-sensitive utilities and real-estate groups lagged. The tech complex was mixed, with AI-heavy names still digesting last week's capex reassessment.

In fixed income, the two-year yield rose two basis points while the ten-year fell three, flattening the 2s10s curve to its most inverted level this month. That inversion is the bond market's way of pricing a near-term hike alongside a slowdown further out — a thesis that hinges on the energy shock passing before the tightening bites.

Attention now pivots to the September PCE print on October 29. A core reading at or above 0.3% month-over-month would, strategists say, effectively lock in a December hike; a softer number reopens the door to an extended pause. Either way, the Fed has re-entered the conversation as the dominant driver of cross-asset returns.