Stock Market Update

[BRIEFING.COM] As expected, the FOMC voted to leave the target rate for the fed funds rate unchanged at 3.50-3.75%. Fed Governor Miran was the lone dissenter on the committee of 12 voters, preferring a 25 basis point cut at this meeting.

The directive noted that, "Uncertainty about the economic outlook remains elevated. The implications of developments in the Middle East for the U.S. economy are uncertain. The Committee is attentive to both sides of its dual mandate."

This decision and this perspective should have surprised nobody. Similarly, it should not be a surprise that the median estimate for PCE inflation this year got bumped up (to 2.7% from 2.4%) along with the median estimate for core PCE inflation (to 2.7% from 2.5%). The median estimate for the change in real GDP also moved higher (to 2.4% from 2.3%), while the median estimate for the unemployment rate remained unchanged at 4.4%.

There was no change in the median estimate of one rate cut this year and one rate cut next year, although the longer run estimate for the fed funds rate ticked up to 3.10% from 3.00%.

The market's initial reaction to these updates was fairly muted. That's understandable, because there weren't any major surprises. One could argue, though, that it was a pleasant surprise to see the median estimate for one rate cut this year remain intact even though the median estimate for the inflation forecasts moved further away from the Fed's 2.00% target. That seemingly suggests the consensus view of Fed officials is that the inflation driven by the war with Iran won't be lasting.

We'll find out if that is the case when Fed Chair Powell holds his press conference at 2:30 p.m. ET. We would expect Mr. Powell to point out that geopolitical-driven price shocks aren't typically long-lasting but that there is a high degree of uncertainty around the current situation, so the Fed will be patient and take the necessary time to assess the incoming data before acting. It will be a tactful way of saying the market can expect the next rate cut later rather than sooner.