Wednesday’s Fed decision this week to keep interest rates unchanged despite sticky inflation fueled by oil prices above $100 per barrel was a head-scratcher for more than one Wall Street strategist.
“In our view, the decision was puzzling,” Ed Yardeni of Yardeni Research wrote last week.
“It reminds us of someone standing in a room with a fire alarm blaring and smoke pouring under the door, yet insisting on more evidence before calling the fire department,” he noted, highlighting that the US economy increased at a 3.4% annualized rate in the third quarter.
Others have questioned whether the Fed put — in which the central bank would step in to support financial markets by lowering interest rates or providing liquidity amid declining asset prices — could come into play.
Read more: How jobs, inflation, and the Fed are all related
“The Fed put is very much back,” Darius Dale, founder of 42 Macro, said on Yahoo Finance on Thursday. Dale expects that, going forward, policy will include greater coordination between the Federal Reserve and the Treasury to influence the bond market, the government’s means of issuing debt.
That coordination could include officials eventually stepping in to buy back government bonds using cash backed by the Fed, giving policymakers extra firepower to calm nervous bond markets and provide a liquidity boost next year.
Read more: How soaring Treasury yields could hit your finances
That prospect helps explain why investors have continued to shift between stock market sectors rather than suffer a broader sell-off, despite concerns about inflation, interest rates, and AI jitters.
“This is a market that continues to rotate instead of go down,” Dale said. “The market might be looking — eyes on the prize — at a liquidity rescue in 2027.”
Indeed, most of the sell-off in recent sessions has happened in tech. Worries over AI funding and the impact of artificial intelligence on businesses such as Google (GOOG, GOOGL) search software have left certain pockets of the AI trade reeling. Quarterly prints from Intel (INTC) and Amazon (AMZN) have put pressure on the AI trade.
Meanwhile, Healthcare (XLV), Financial Services (XLF), and Real Estate (XLRE) saw gains last week. Over the past month, every other sector but Technology (XLK) and Communications Services (XLC) has rallied, according to Yahoo Finance’s AlphaSpace data.
“Beneath the hood, the fundamentals of this AI wave still remain really robust,” Stephanie Aliaga, global market strategist at JPMorgan Global Asset Management, told Yahoo Finance.