March Fed Meeting Makes No Changes

The Federal Reserve completed its March meeting, and made no meaningful changes to the outlook. Your bullet points ahead of Chairman Powell’s 2:30PM press conference.

-          The fed funds rate remains unchanged at 5.25% - 5.50%. Earlier this year, most market participants expected the Fed to cut by either the January meeting or this one. DKI said that wasn’t going to happen. Market expectations shifted, and today’s “pause” was not a surprise.

-          The press release commentary was slightly inconsistent in the way it described future rate cuts vs the 2% inflation target. In one place, the language says they won’t cut “until (the Committee) has gained greater confidence that inflation is moving sustainably toward 2%”. Like Powell’s recent comments, that implies the Fed will consider cutting before inflation reaches 2% and leaves open the possibility they could move the target range to 3% - 4%. Later in the press release, they wrote “The Committee is strongly committed to returning inflation to its 2% objective.” I believe this opacity is intentional and is designed to give the Fed room to justify a range of future policy options.

-          There were comments on the expansion of economic activity and job gains. This, plus “elevated inflation” is the reason given for not cutting the fed funds rate at this meeting. DKI agrees with this decision, and further emphasizes that most of the growth in GDP and in jobs comes from excessive government spending. This is an election year, and Washington DC has its thumb on the scale trying to make the reported economy look better than the real one most of us experience on a daily basis. (Please see months of commentary on the DKI blog regarding the quiet war between the Federal Reserve on one hand and Congress and Treasury on the other.)

-          The market traded up immediately after the press release went public. That’s because the “dot plot” which shows the projection for the fed funds rate by all members of the Committee continue to show an expectation for 3 cuts this year. Coming into 2024, the market expected 6 cuts (for a total of 1.5%). DKI again said that wasn’t going to happen. Recently, expectations had been revised to 3 rate cuts (for a total of .75%). The equity market had been concerned that the new dot plot would show a preference for only two cuts this year. While nine committee members are between zero and two cuts for the year, nine others penciled in a full three cuts. One more dovish Fed member is at four. We point out that these dot plots represent current thinking for Fed members, are frequently revised, and typically inaccurate. We mention it only because it’s the reason the market is moving now.

-          I’ll be on Powell’s press conference which starts shortly and will post any additional information should he say something newsworthy.

-          DKI continues to believe that inflation is elevated, understated, and a problem that won’t be solved soon. We maintain positions in inflation hedges and beneficiaries like Bitcoin, gold, and energy. Subscribers are encouraged to check out the Current Recommendations page for specific tickers.

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