Wall Street once moved largely in step with the Federal Reserve’s policy rate. Signs of rate hikes made investors pull back, while hints of lower rates pushed prices up. Next week’s meeting will test if that pattern still holds in a year that’s been unusual. Investors haven’t waited on Jerome Powell this year. Stocks are at records, credit is active, and exchange-traded funds have attracted more than $800 billion so far, including $475 billion for equity products, even as mutual funds saw outflows. A total haul above $1 trillion for ETFs is now within reach, which would be a record. Inflows continued through April’s selloff and fresh tariff headlines, spanning broad index vehicles, crypto funds, and high-yield debt. As mentioned in a Bloomberg’s report David Solomon, the chief executive officer of Goldman Sachs Group Inc., said it plainly this week that “It just doesn’t feel to me like the policy rate is extraordinarily restrictive when you look at risk appetite.” Markets quickly echoed that view. Despite new signs of labor-market strain, the S&P 500 set another record on Thursday. If the Fed cuts rates next Wednesday, as many expect, the move may matter less for what it starts than for what it signals. In the past month, over $120 billion went into ETFs, mostly big stock and bond funds. Retirement money keeps flowing into markets automatically U.S. savers have long channeled paychecks into retirement plans. What’s changed is where those dollars land. By default, more money now flows into passive strategies through target-date funds, model portfolios, and robo-advisers that rebalance on schedule. Many in the industry call it the “autopilot” effect; others describe it as “inelastic demand,” meaning cash that follows the calendar rather than the day’s news. “We invented the perpetual machine,” said Vincent Deluard, global macro strategist at StoneX Financial. “We direct about 1% of GDP every month into index funds, regardless of valuations, sentiment, or macro.” That doesn’t make policy irrelevant. Benchmark rates still shape bond pricing, equity valuations, and leverage. But the idea of the Fed as sole conductor of risk no longer captures the full picture. Persistent flows can prop up optimism even when incoming data cools. That split is clear now. As employment readings worsen, traders are leaning toward three cuts this year, with a quarter-point move next week seen as close to certain. Even so, the S&P 500 ended near record levels on Friday, up 1.6% for the week. ETFs alter market response to fed surprises Another shift is how people use ETFs . Many treat them almost like cash, easy to trade even when some funds use leverage or hold less-liquid assets. Americans held more than $12 trillion in defined-contribution plans at the end of the first quarter, including $8.7 trillion in 401(k)s, ICI reports. Target-date funds account for a growing slice of 401(k) balances. At the same time, passive vehicles, ETFs and index mutual funds, have overtaken traditional active funds to make up the majority of U.S. long-term assets. The result is a steady pipeline of savings that hits markets on schedule regardless of headlines. Researchers are also documenting how ETFs shape the path of policy surprises. A recent study finds broad index products tend to lift rallies when the Fed cuts unexpectedly and cushion declines when hikes catch investors off guard. The reason is mechanical as creation and redemption move whole baskets at once, boosting demand on the way in and easing pressure on the way out. With ETFs now central to market plumbing, they can change how policy ripples through prices. Want your project in front of crypto’s top minds? Feature it in our next industry report, where data meets impact.
