How Did the Fed Do Today? Are You Asking Me as a Trader or Economist?

Talk about disappointment. The official FOMC policy statement and quarterly economic projections were released at 14:00 EDT on Wednesday afternoon. The statement was nothing more than a "cut and paste" job almost from start to finish. 

The first part of the second sentence was the only place where any change was made. "Job gains have moderated since early last year but remain strong" to "Job gains have remained strong." Basically, the image of the labor market that the message illustrates is both simplified and strengthened.

There was absolutely no increased concern over rising inflation expressed in the statement, though the line from January about it not being "appropriate to reduce the target range until it (The FOMC) has gained greater confidence that inflation is moving sustainably toward 2 percent." was reused.

As for the economic projections, 2024 year-end GDP was upgraded at the median from 1.4% to 2.1%, year-end unemployment was upped just a smidge from 4.0% to 4.1%, PCE inflation was left where it was at growth of 2.4%, and Core PCE inflation was increased from 2.4% in December to 2.6%.

As for the Fed Funds Rate... aka "the dot plot", the committee left their median projection where it was, at 4.6% or about 75 basis points lower than it is now. This will likely disappoint economists that had hoped for a downgrade to cuts of 50 basis points for the year, but not traders and investors. That crowd will likely cheer the fact that the median was left where it was. It may or may not be important to understand that the mean or average did move even if the median did not.

The mean, which is not publicized, actually did grow from 4.7% to 4.8% as the number of dots now above 5% for the year end rate moved from three to four (of 19), so not overtly, but at least we do see some cognizance across the group that inflation has not been brought to heel.

For what's worth, which is virtually nothing, the committee sees the Fed Funds Rate at 3.9% at year's end 2025, up from 3.6% at that time back in December.

Of course, because nothing awful or unpredictable ever happens inside the castle, the FOMC sees GDP table at roughly growth of 2% indefinitely, unemployment at or close to 4% seemingly forever, and inflation that gets to target over the next two years and stays there without any volatility over several years. Yippee. The quantitative tightening program was left as is.

The Press Conference

Chair Powell sounds very confident about getting consumer level inflation down to 2% "over time". Powell does acknowledge that the Fed is in a spot where they don't want to move too early on rate cuts and allow inflation to cook hot as they did in January and February, and they don't want to act late and place unnecessary drag on economic activity.

Powell sees that burst of inflation in January and February as potentially the result of seasonal factors, though he does say that those two months of heat cannot be ignored. I wonder if he's seen gasoline prices in March. The month of March is not going to cool the early 2024 upswing in prices.

Largely, I Am Disappointed

My P/L is not disappointed. As an economist, though, I feel that it would probably have been prudent to go at least as far as saying that rates will likely stay higher for longer, which is where the FOMC was prior to the November pivot. 

To be honest, I think it would have been smart to put a little fear into financial markets that a rate hike would be possible later this year if recent trends persist as long as the economy is still strong enough to handle it. My trader/investor side will get all he can. My economist side can't help but feel disappointed.

At the time of publication, Stephen Guilfoyle had no position in the securities mentioned.