Coming out of its FOMC meeting of the year on Wednesday, the Federal Reserve announced it will be holding interest rates steady. Fed Chair Jerome Powell later commented to the press that rate cuts starting in March appear unlikely.

Yahoo Finance Markets Reporter Josh Schafer joins the Live show to discuss how investors are interpreting the Fed's monetary policy and what it means for equities and the labor market.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

BRAD SMITH: Investors now looking to May or June for the first cut. So how could that higher-for-longer stance from the Fed impact stocks in the year ahead? Yahoo Finance's Josh Schafer is here with the details. Hey, Josh.

JOSH SCHAFER: Yeah, Brad. So when you take a look at the market action yesterday, we obviously saw a risk-off sentiment pretty much market wide. Right? And we saw moves specifically in something like IWM or the Russell 2000, small caps, which have been a popular trade in the March cut euphoria that we had over the last two weeks. So investors cutting back bets in the short term.

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But I think in the long term, one of the key things to focus on here is not necessarily what Powell said about rate cuts, but what he said about the economy. He said, we feel like inflation is coming down. Growth has been strong. The labor market is strong. And perhaps most importantly, he said those latter two things that growth is strong and the labor market is strong isn't as much of a risk to inflation anymore.

So let's think about that from a macro perspective and what we're talking about here. The Federal Reserve Chair is saying the economy is doing pretty good, and we're not that worried about it anymore. So in essence economic good news can be good news again. And when the economy is doing well that means companies are doing well. So in the long run. It's probably good for earnings, I think, is sort of what I'm getting at here.

SEANA SMITH: Josh, let's play devil's advocate. Right? Because there is certainly a lot of reason to be optimistic. Right? The economy holding up much better than expected. We haven't seen the job losses that maybe the Fed had embraced much of Wall Street for. But is there some downside risk just in terms of the fact that if we do see a further delay in rate cuts, what that could mean then for investors?

JOSH SCHAFER: Yeah. I mean, that's the key question here now. Right? Is OK, we've been doing well, can we sustain, right? I think a lot of people feel like we're in a good place. When you talk to equity strategist, Dave has said the difference between March and May doesn't matter. Ben Snyder over at Goldman Sachs, who I talked to recently about their call on small caps to go up 15% this year, he said, March, May, June, I don't really know how much of a difference it makes.