U.S. Indices were firmer on Wednesday and rose to highs in wake of the latest FOMC rate decision, accompanying SEP’s and Chair Powell’s press conference, but closed off highs. Recapping, the Fed left rates unchanged at 4.25-4.5%, as expected, with dot plots unchanged, growth forecasts cut, and 2025 unemployment and inflation projections raised. The Fed also announced it will slow the pace of the balance sheet runoff. The decision on rates was unanimous, although there was one dissent from Governor Waller, who supported no change to the balance sheet runoff. In the press conference, Powell largely stressed a wait-and-see approach and that they are not in a hurry to cut rates, even when quizzed about cutting in May, as he stressed several times there is a lot of uncertainty ahead, and to bear that in mind when digesting Fed forecasts. Treasuries saw upside, while the Dollar weakened, albeit DXY still gained on the day, with the Japanese Yen the major beneficiary amid yield differentials, and as such the only G10 FX firming against the Dollar. Away from the Fed, attention continues to reside around US/Ukraine/Russia updates, as Trump and Zelensky spoke yesterda with Trump stating they had a very good call. The crude complex saw gains, but did settle off highs as participants continue to digest geopolitical events. Spot gold firmed and briefly breached USD 3,050/oz to the upside. For the record, sectors were exclusively in positive territory with Consumer Discretionary sitting atop of the pile, with TSLA (+5%) supporting the sector. Consumer Staples and Health are the relative laggards, and flat. Ahead, Super Thursday is on the docket with PBoC LPR, SNB, Riksbank, and BoE rate decisions, in addition to ECB President Lagarde, BoC Governor Macklem, US Initial Jobless Claims, Philly Fed, as well as NKE, FDX and MU earnings. The Federal Reserve left rates on hold as was widely expected, while the median Fed dot plots were left unchanged throughout the forecast horizon, still seeing two further cuts in 2025. The Fed removed language about risks to its goals being roughly in balance and noted that uncertainty about the economic outlook has increased. January’s statement read, “The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance”, although Powell later signalled this was not meant to signal a policy shift. The SEPs saw 2025 and 2026 growth projections lowered, with 2025 unemployment raised, as were the median headline and core PCE projections. The Fed also announced that from April the Fed will slow the pace of the balance sheet runoff, where the monthly Treasury redemption cap will decline to USD 5 billion from USD 25 billion, but the monthly redemption cap on MBS was unchanged at USD 35 billion. Regarding the composition of the 2025 dot, four on the FOMC see no cuts in 2025, four see one cut, nine see two cuts, and two see three cuts. Regarding the rate decision, it was a unanimous decision although Governor Waller preferred no change to the Fed’s balance sheet policy. Powell’s Press Conference: Largely stressed a wait-and-see approach and that the Fed is not in a hurry to adjust policy, something he repeated when asked about cutting rates in May. He stressed several times there is a lot of uncertainty ahead, and to bear that in mind when digesting Fed forecasts. He acknowledged the rise in short-term inflation expectations but highlighted that long-term inflation expectations remain anchored. He also noted that tariffs tend to see upside in inflation, and downside in growth, but said it is challenging to know how much of an impact tariffs are having directly on inflation, but the increase in goods prices recently is partly due to tariffs. He said it would not make sense for the Fed to act on a policy that has a transitory effect on inflation. He said the Fed can cut, or hold, at what is a “clearly restrictive” level. Regarding the balance sheet, he said it was a technical adjustment and not meant to signal a change in the monetary policy stance, noting it makes sense to slow as the balance sheet approaches an ample level, but they are still far from that. Powell also said that the removal of the Fed language that goals are roughly in balance, was also not meant to send a signal. On PCE, due March 28th, the Chair said PCE prices likely rose 2.5% in February and core PCE prices probably rose 2.8%. Elsewhere, Oil rose 0.43% while Gold ended Wednesday’s session with a further 0.8% gain.
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