Stock Market Update

[BRIEFING.COM] The FOMC made its policy rate decision. As expected, it voted to leave the target range for the federal funds rate unchanged at 4.25-4.50%. That was a unanimous vote; however, the directive indicates a dissent by Fed Governor Waller.

Mr. Waller did not disagree with the rate decision. Rather, he preferred to continue the current pace of declines in securities holdings. His view did not win out. The Fed decided today to reduce the pace of Treasury securities it will allow to runoff its balance sheet from $25 billion per month to $5 billion per month, starting April 1. The runoff for agency mortgage-backed securities was left unchanged at $35 billion per month.

Notably, the directive indicated that the uncertainty around the economic outlook has increased (in December it said the economic outlook is uncertain), but continued to assert that the Committee is attentive to both sides of its dual mandate.

The latter statement will be subject to debate given that the Summary of Economic Projections showed a downtick in the median estimate for 2025 real GDP growth from 2.1% to 1.7% and an uptick in the PCE inflation rate from 2.5% to 2.7% (core-PCE was increased from 2.5% to 2.8%). The interesting thing is that the median estimate for the fed funds rate was unchanged from December at 3.9%, which is tantamount to an expectation for two rate cuts.

So, the Fed lowered its growth outlook but left its rate cut outlook unchanged at the same time it raised its inflation outlook. What that implies to us is that the Fed is really more pre-occupied with the inflation side of its mandate than the growth side. If the Fed truly believed lower growth would tame inflation, it would have tempered its inflation outlook and perhaps even allowed for a third rate cut.

That didn't happen so, like many other things, the market will be left guessing as to the eventual outcome here, which, to be fair, is the position fed officials find themselves in as they await data that validates, or negates, the market's growth concerns stemming from the tariff policies.