Stocks Closed Higher Yesterday, Fed Holds Interest Rates Steady Markets were already trading up prior to the FOMC Announcement, but shot up even more afterwards, and during Fed Chair Jerome Powell's press conference that followed. The Fed, as expected, left rates unchanged yesterday. And while they once again reiterated their preference to take it slow on monetary policy, at least until they get more clarity around tariffs and the administration's fiscal policy, they still expect 2 rate cuts this year (presumably by 25 basis points each). They released their SEP (Summary of Economic Projections), and forecast 2025 GDP at 1.7%, a slight downshift from December's 2.1% estimate. While they don't give a quarterly outlook, it was nice to see the solid annual estimate in the wake of GDPNow's Q1'25 forecast of -1.8% (from 2.3% -- all within the span of a couple of weeks). Clearly, the Fed does not anticipate a recession coming, as evidenced by their numbers. Mr. Powell noted that, historically, at any given time, there is a 1-in-4 probability of a recession in the next 12 months.
When asked about the chance for a recession now, he said the following: "the question is whether, in this current situation, those possibilities are elevated. I will say this, we don't make such a forecast. If you look at outside forecasts, a number of forecasters have generally raised, a number of them have raised the possibility of a recession somewhat, but still at relatively moderate levels. They were extremely low. If you go back two months, people were saying that the likelihood of recession was extremely low. So it has moved up, but it's not high." On that note, the Fed sees 2026 GDP at 1.8%. And 2027 at 1.8% as well. As for inflation, the Fed raised their PCE outlook to 2.7% for 2025, from December's estimate of 2.5%. But they expect 2.2% in 2026. And finally hitting the Fed's 2.0% target in 2027. But again, they are still expecting 2 rate cuts this year, putting the Fed Funds rate at a midpoint of 3.9%. And another 2 rate cuts next year, putting the Fed Funds rate at 3.4%. And finally in 2027, a singular rate cut, putting the Fed Funds rate at 3.1%, with longer run projections at 3.0%. As for the labor market, they see the unemployment rate at 4.4% in 2025, up from December's 2025 estimate of 4.3%. (For context, the latest Employment Situation report showed the unemployment rate in February at 4.1%.) Looking further out, they see it at 4.3% in 2026, and 4.3% in 2027. All in all, there were no real negative surprises. If anything, it was more upbeat than most had probably expected given the recent worries over Q1's negative GDP estimate (which should be taken with a grain of salt), and the labor market, given the recent layoffs to the Federal workforce. In other news, yesterday's MBA Mortgage Applications showed the Composite Index fell -6.2% w/w with Purchases up 0.1%, and refi's off -12.8%. With two days left in the week, most of the major indexes are in the green for the week, with only the Nasdaq missing out (albeit just barely by less than two-tenths of a percent). Aside from Tuesday's down day, the indexes have been up in 3 of the last 4 days. And all of them are up solidly from their worst levels from last week. We'll see if they can build on those gains for the rest of the week. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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