FOMC Keeps March Interest Rates Unchanged, Projects Little Change for 2026

0:00I bring in Tom White to take a look here at the big picture, and we'll continue to sort of comb through these headlines that are coming out as well. As the federal, you know, obviously the federal open market committee is going to be taking a look. They maintain the projections for one cut in 2026. I think that's very interesting. A lot of folks were hoping for two to three cuts. Of course, Stephen Myron is the dissenter in favor of a rate cut. You knew that was coming and holding that benchmark rate steady. Also, the Middle East developments bring some uncertainty. And everybody was wondering whether or not the committee would put that in there, and they have, in fact, mentioned that. Some of your thoughts here in market reaction? Yeah, 11 to 1 vote. Only one dissenter this time. Not surprisingly, especially after the inflationary data that we've received on the wholesale side out of PPI, the last two months, which are above expectations. That doesn't even take into account what's going on in the Middle East and crude oil prices, which actually fell back into negative territory despite some of the uncertainty and some of the gas fields getting hit in Iran today.

1:05But not surprising, keeping the rate steady at 3.5 to 3.75% only expecting a one cut in 2026. But remember, Nicole, just over a month ago, there were projections, like you said, of anywhere from two to three 25 basis points cut built in for this year. Now, with the Fed's going to have to kind of balance out here, I haven't read through the red line of their statement yet. But with the Fed's going to have to balance out here, is this going to be a structural change where inflationary pressures work against what we're seeing in the labor market, where we've seen some decaying data from that side. That non-farm payrolls number came in far below expectations at my minus 92,000 for last month. That balance that they're going to have to have here. Nicole, I think that's what investors are trying to figure out at this point. Now, if we don't get any moves this year, and I'm hearing rumors swirling that, hey, we might have to hike in 2027 if these inflationary pressures remain at this point.

2:07What is the focus going to be on from the members that voted moving forward? Is it going to be on the jobs market, which is weakening, or is it going to be on potentially recognition of inflationary pressures? Those are the two things that I think Fed Chair Powell is going to need to answer during this Q&A. You know, as we're talking about this, I think you're right on when you talk about inflation, because that's something that they're concerned about. In fact, raising the inflation outlook for the end of the year, looking at 2.7%. So bringing that up for the end of 2026, raising the inflation outlook, that does not scream rate cut, does it? To your point, there are some folks who have been calling maybe we might need to hike at some point, maybe next year. But also that they are now sticking with the one cut idea, and that's the projection, but the uncertainty over the Iran War and the implications of what that could mean, not only for oil, but also just for our economy. And as oil rises, that ticks off on our GDP to the downside.

3:10And so that's something that will continue to watch as well. But if you have inflation in the environment, coupled with the PPI that we got in today, that was hotter than expected on the wholesale level. And this projection, it does not say rate cut, does it? No, and I think that might be, you know, what we're going to see throughout 2026. Especially if this is resolved, this conflict in the Middle East is resolved relatively quickly, maybe by the end of the month, where the lag effect doesn't last too long in the disruptions and the inflationary pressures. Where we'll start to see a re-ignition of growth, right? We've seen some of those numbers from the New York Fed, the Atlanta Fed. Their GDP estimates have come down since the beginning of the month, not surprisingly, if those re-ignite. Now, everybody's wanting a rate cut, we've seen it out of the administration kind of pounding the table on this. While the jobs market's probably signaling, maybe we do need a rate cut, but at the same time, inflation's not. So that goes back to that discussion about the balance that the Fed has to kind of juggle right now with what's going on in all this uncertainty out there in the economy at this point.

4:18But, you know, I think a lot of it's going to depend on data that comes out in the next couple of months. But then any potential resolution to the conflict in the Middle East, I think that's going to be the key. And I think Jerome Powell is going to have to answer those questions. And I think he's going to use the term that this is uncertainty at this point. Now, one of the things I wanted to kind of highlight was the fact that remember when they implemented all the tariffs, right? And they said that was going to be a dent to GDP. It was going to be a dent to the consumer and that growth expectations would need to be pulled back. Well, that didn't take place. It actually accelerated into the end of 2025 into 2026. So, will this temporary, an inflationary bump that we're seeing due to oil prices and due to maybe the supply chain shocks that it's causing, you know, will that dissipate? Or will the consumer look past it once again? Historically, Nicole, that's what we've seen. Dare to bet against the US consumer and bet against our economy at your own peril. And does that happen?

5:25But there's still a lot of uncertainty out there. You just hope the word stagnation doesn't come up if we start seeing a pullback in growth numbers due to the fact that this conflict lasts longer than expected. And also the projections are continuing to come out when, you know, we already talked about inflation and that being on the higher end, right? And they raised the outlook to 2.7%. As far as economic growth, they saw 2.3% in 26, 2.1%, 27, and 2.0% in 28. Also, as you were talking about the labor market, so apropos here are keeping unemployment rate unchanged at 4.4%. That matches their December projections. And also the PCE, when you look at that, that is the preferred gauge of inflation for the Fed. And in fact, they do see that being higher now from their prior December estimates, where they had it at 2.4%. Now they moved it up to 2.9%. So they do see more inflation ahead. And that's something that versus unemployment staying at 4.4%.

6:27The last thing I'll add is Sam Stovall, when he was on, when he said it took more than 40 days to drop 5% on the S&P 500. And that in turn, when you look historically, it doesn't say recession. It doesn't say bear market. In fact, it just shows some steadiness and a bit of a pullback. A final quick thought. Yeah, I think you bring up a good point because those red flags aren't on the radar of anybody really at this point. Maybe that's why there's optimism in the equity market where we're down 6.10% of a percent for the S&P 500 right now. Even with all this uncertainty that's out there in crude oil prices, back above 94, 95 bucks a barrel at this point in a call. The market is looking past the uncertainty at this point, which it historically does. And maybe that's, I think, has some investors scratching their head a little bit like, Hey, why aren't we seeing an 8% pullback or 10% pullback in the equity market instead of a four or three to 5% pullback that we've seen that the optimism's still there that we're going to get through this and that that growth rate's going to resume.

7:33And the consumer is going to stay relatively resilient. And I think that's what, you know, risk on assets are kind of telling you right now. What happened to Waller to Center Waller? Well, he might have looked at some of that inflation data on the wholesale side, Nicole, and, you know, will that trickle down into the CPI data, the PCE data. And I think that's the fear maybe that they have. Well, hey, we'll stand pet now. We got another vote. We got another meeting next month. We got one coming up and, you know, we've got a couple coming up. There's just no expectations. And if inflation stays where it is right now, maybe comes back down if we get through this conflict, you know, in the growth rate resumes, it's upward trajectory. And the consumer continues to spend in the job market kind of stabilizes. Those are all good positive things for the equity market going into the end of the year. Yeah. Maybe he looked at inflation. Yeah. Or maybe he said, I'm no longer in the running for fed share. I don't know.

8:37All right, Tom White. Great to see you.