Fed Still on Pause ⏸️

Market Musings 3/19/2025

Quick thoughts on the markets and major portfolio news. Not on Ursa yet? Download Ursa from the App Store!

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Markets rally on the Fed meeting; here’s our takeaways…

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1

As expected, the Fed held rates flat and maintained their “wait and see” pause. They continue to reiterate that they see economic growth with stabilizing #LaborMarkets while #Inflation remains stubbornly sticky above their target rate.

As we mentioned previously, they noted that they see the #Tariffs effect as “transitory”, but not as an ongoing #Inflation concern. Fed Chair Powell noted they’re trying to discern the “signal from the noise”－basically meaning, lots of news and drama, but they’re not sure what’s real yet.

We can sort of see this indecisiveness in the dot plot－unchanged and still forecasting 2 #RateCuts this year.

2

However, they did note that macro uncertainty is increasing. They pointed out moderating #ConsumerConfidence spending, but still maintained #LaborMarkets are solid as well as specifically calling out potential impact from policy changes on trade, immigration, fiscal policy and regulation which they’ll evaluate as it evolves.

We can see the Fed tilting more dovish in their economic projections－which had #Inflation increasing, #LaborMarkets unemployment increasing and GDP falling. However, their approach seems to be more reactionary.

3

The Fed is slowing down their balance sheet reductions.

So, what’s the balance sheet? The Fed purchases debt assets like Treasuries and mortgage-backed securities as a tool to support the economy. Some refer to this as the money printer.

However, the Fed is currently doing the opposite and net selling assets which could slow down the economy. As of this meeting, the Fed is lowering the Treasury redemption cap to $5B from $25B. The Fed claims the reduction isn’t due to monetary policy changes, but a reduction is a reduction and it wasn’t small.

TLDR

The Fed appears to be at an impasse. Macro uncertainty is rising and obviously impacting their economic forecasts. However, they’re still not sure what to do and still discerning the “signal from the noise”.

While the market rose on the dovish tone and reassurances that the economy remains strong, we continue to see the Fed as too reactionary. Remember the “transitory” #Inflation a few years ago? Exhibit A.

The near-term economic outlook remains cloudy and, at the risk of sounding like a broken record, we continue to need the macro to stabilize to gain more clarity.