The S&P 500 index fell 0.75% and US Treasuries recouped earlier losses on 1 May after investors settled on a more hawkish interpretation of the Federal Open Market Committee meeting. The FOMC statement was initially viewed as slightly dovish, but Federal Reserve Chairman Jerome Powell’s press conference was seen as more hawkish. The S&P 500 has fallen after eight of the previous nine FOMC meetings under Jerome Powell. Yesterday's ninth decline out of ten was larger than the average 0.5% post-meeting drop.

But looking through the immediate risk-off market reaction, we think the Fed’s latest meeting confirmed that the central bank’s stance remains neutral.

* On balance the Fed’s position remains that it expects inflation to return to the 2% target. The S&P 500 initially advanced to a new intra-day record high after the Fed changed the language on core inflation in its statement to “running below 2%” from “remains near 2%”. However, in his press conference Powell noted reasons to believe that the inflation slowdown would be transitory, and cited the Dallas Fed Trimmed Mean inflation rate, which remains near 2%.

* With inflation low, the Fed has time to be patient and await greater clarity from the economic data. The FOMC statement also reflected the unusual 1Q19 US GDP results, which reported a 3.2% growth rate that was boosted by net exports and inventories. The Fed noted somewhat paradoxically that "economic activity rose at a solid rate," but "growth of household spending and business fixed investment slowed in the first quarter." Powell’s press conference then noted that risks have diminished since March, as global financial conditions have eased, Brexit risks have receded, and the US and China continue to make progress on trade talks.

* The Fed reiterated it is in no rush to move rates. There was no change to forward guidance in the statement, including the key phrase "the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate." This, and Powell's comments, made it clear that the Fed is not considering moving rates in the near future. The Fed did make a technical adjustment to the Interest on Excess Reserves rate, reducing it by 5 bps to try to move the Fed funds rate closer to the middle of its target band.In our view, the Fed is unlikely to raise rates unless inflation moves above its 2% target, and it is unlikely to cut rates while economic conditions are strong. Against this backdrop we maintain a moderate risk-on stance. We are neutral on US equities, which we see as fairly valued, and see better opportunities in Japanese, emerging market and Canadian equities.