[New York Stock Market] Rises Despite FOMC Disappointment... Focus on U.S.-China Talks, Easing of AI Chip Export Restrictions

Fed Holds Rates Steady for Third Time Despite Trump Pressure
Powell Cites Tariff Uncertainty: "Let's Wait and See"
Preemptive Rate Cuts Dismissed... Stagflation Warning Issued
U.S. and China to Hold First Official Trade Talks in Switzerland on May 10
Investor Sentiment Revives on Reports of Eased AI Chip Export Restrictions

All three major U.S. stock indexes rose simultaneously on May 7 (local time) in New York. Although investor sentiment had weakened after the Federal Reserve (Fed) warned of the possibility of stagflation (rising prices during an economic downturn) and kept its benchmark interest rate unchanged, news of the lifting of export restrictions on artificial intelligence (AI) semiconductors sparked a late-session rebound.

Reuters Yonhap News

On this day, the blue-chip Dow Jones Industrial Average (Dow) closed at 41,113.97, up 284.97 points (0.7%) from the previous session. The large-cap S&P 500 index rose 24.37 points (0.43%) to finish at 5,631.28, while the tech-heavy Nasdaq index climbed 48.5 points (0.27%) to close at 17,738.16.

The Fed, as expected, kept the federal funds rate unchanged at 4.25-4.5% at its Federal Open Market Committee (FOMC) regular meeting on this day. After starting rate cuts in September last year and lowering the rate by a total of 1 percentage point from 5.25-5.5%, this marks the third consecutive hold following similar decisions in January and March this year. The main keyword of this FOMC was "uncertainty." In its policy statement, the Fed said, "Uncertainty about the economic outlook has increased further," and noted, "The Committee is paying attention to risks on both sides of its dual mandate (price stability and full employment), and both unemployment and inflation risks have risen." This reflects concerns about the possibility of stagflation, where tariffs drive up prices while economic growth slows.

Fed Chair Jerome Powell also said at a press conference immediately following the FOMC, "Given the scope and scale of tariffs, the risks of higher inflation and rising unemployment are clearly increasing," adding, "My gut feeling is that uncertainty about the future path of the economy has become extremely high. There is no need to rush (rate cuts)."

On Wall Street, the FOMC decision is being interpreted as a "hawkish hold" (preference for monetary tightening).

David Kelly, chief global strategist at JP Morgan Asset Management, described the decision as "somewhat hawkish," analyzing, "The Fed's announcement is a kind of warning signal to the administration, implicitly saying 'Your policies are leading to higher inflation and unemployment.'" He added, "Frankly, the FOMC statement means there are risks to both sides of our dual mandate, and since we can't be sure which direction to take, we will not rush to cut rates."

Greg McBride, chief financial analyst at Bankrate, said, "The Fed is content to hold steady until economic indicators warrant a rate adjustment," and assessed, "With inflation already high and expected to rise further, the Fed would need to see significant signs of weakness in the labor market before resuming rate cuts."

News of U.S.-China tariff negotiations and the easing of AI semiconductor export restrictions had a positive effect on investor sentiment. The previous day, the U.S. and China confirmed that they would hold their first official trade talks on May 10 in Switzerland. The U.S. will be represented by Treasury Secretary Scott Besant and U.S. Trade Representative (USTR) Jamie Greer, while China will be represented by Vice Premier He Lifeng, who is in charge of economic affairs. This meeting is the first high-level encounter between the two countries since the U.S. raised tariffs on China to 145% and China responded by raising tariffs on the U.S. to 125%. However, President Trump told reporters that there are no plans to lower tariffs on China before the start of the first U.S.-China trade negotiations.

Bloomberg reported that the Trump administration will repeal the AI semiconductor export restrictions that were introduced during the previous Joe Biden administration, which also boosted investor sentiment late in the session.

By stock, Nvidia rose 3.1% on news of the easing of AI semiconductor export restrictions. The Walt Disney Company jumped 10.76% after announcing an increase in streaming service subscribers and results that exceeded expectations. Ride-sharing company Uber fell 2.54% after reporting results that missed market forecasts.

U.S. Treasury yields are declining, especially for longer-term bonds. The 10-year U.S. Treasury yield, a global benchmark, fell 5 basis points (1bp=0.01 percentage point) from the previous day to 4.26%. The 2-year U.S. Treasury yield, which is sensitive to monetary policy, is hovering around 3.78%, unchanged from the previous day.