Instant Reaction: The Fed Decides
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What is the Federal Reserve's latest policy decision?
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No change in rates, no change in dots, one dissent, but some big changes in inflation expectations. Fed officials see one cut still in 2006 at some point, even though their statement notes that uncertainty about the economic outlook remains elevated. Three members who favored no cuts in this year moved their dots down to one. The statement goes on to say, the implication of developments in the Middle East for the U.S. economy are uncertain, and the committee remains attentive to risks to both sides of their mandate. They still see one more cut in 2027. Stephen Myron, the only dissenter, he wanted a quarter-point cut this time, and from the dots, we discern that he still wants 100 basis points at some point this year.
The language about future moves remains the same. They still talk about the extent and timing of additional adjustments to the target range. It's the summary of economic projections in which we see a lot of changes. PCE inflation this year is forecast at 2.7%, up from 2.4% in December. Core is also seen at 2.7%, up from 2.5%. Both dropped to 2.2% next year, up from 2.4% in the December SEP. Core is seen at 2.7% this year. Both dropped back, as I mentioned, next year to 2% in 2028. GDP marked up a tenth in both years, both of the next two years, to 2.4% this year and 2.3% next year. The unemployment forecast remains 4.4% in 2026, dropping to 4.3%. three percent next year. That's up from four point two percent in December.
And the longer run estimate for Fed funds seen as the proxy for the neutral rate rises a tick to three point one percent. Guys, Mike McKee. Thank you, sir. We'll catch up with you a little bit later. Let's start with the price action. We've got equities, then bonds. We'll have a sneak peek of what's happening in the commodity market because we're tracking that throughout the day here at Bloomberg Equity Markets. Looking at the S&P 500, off-session lows were still negative by 0.5%. In the bond market, yields slightly higher on a two-year buy, two basis points, basically as you were at 370 on twos, on tens at about 421, which is basically where we were going into this decision. So this is what we're doing.
You go into the projections. We'll ignore the statement just for a while. We'll go into the statement and we'll look at the projections and compare what they were projecting back in December and have a look at what they're projecting now. So let's just go through 2026 for GDP, revised slightly higher. That's some good news. 27 as well. Same thing, by the way. So they revised GDP higher. They revised inflation higher.
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Chapters
6 chapters
1
What is the Federal Reserve's latest policy decision?
0:01–7:26
2
How do inflation expectations impact the Fed's decisions?
7:26–11:48
3
What changes were made to the Fed's economic projections?
11:48–15:45
4
What does a dissent in the Fed's vote signify?
15:45–20:20
5
How do geopolitical risks affect the Fed's outlook?
20:20–32:03
6
What role does AI play in current economic forecasts?
32:03–33:10
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