Stock Market Update

[BRIEFING.COM] As expected, the Federal Open Market Committee (FOMC) voted unanimously to leave the target range for the fed funds rate unchanged at 4.25-4.50%. The market was quick to dismiss that decision, though, turning its attention instead to the Summary of Economic Projections, which had some changes in it but not the changes the market (or the president, for that matter) wanted to see.

Specifically:

• The dot plot showed the median rate estimate at 3.90% for 2025, which continues to suggest an expectation that there will be two rate cuts before the end of the year.
  • The median rate estimate for 2026 was moved up to 3.60% from 3.40%, and the median rate estimate for 2027 was bumped up to 3.40% from 3.10%.
• The median PCE inflation estimate for 2025 was increased to 3.0% from 2.7%, while the median core PCE inflation estimate rose to 3.1% from 2.8%.
• The median real GDP estimate for 2025 was lowered to 1.4% from 1.7%.
• The median unemployment rate estimate increased to 4.5% from 4.4%.

The policy directive continued to state that "inflation remains somewhat elevated." Dropped from the March directive was the comment that the committee "judges that the risks of higher unemployment and higher inflation have risen" and the view that "uncertainty about the economic outlook has increased further." The latter has been replaced by the observation that "uncertainty about the economic outlook has diminished but remains elevated."

The initial reaction to the FOMC decision and projections has been muted, suggesting that, while the market may not like the changes seen in the SEP, it wasn't necessarily surprised by them. Market participants are also sitting tight in front of Fed Chair Powell's press conference, which begins at 2:30 p.m. ET, and could contain some more market-moving cachet.

In terms of the Fed's thinking, though, the compilation of the policy directive and SEP leans in the direction of anticipating an economic environment that is closer to a stagflation environment than an environment of strong growth and tame inflation.

In brief, it also points to a Fed that is sticking by a wait-and-see approach.