VIDEO: Why the Fed’s June Meeting Will Be the One That Really Matters
Thursday's forward guidance from these three companies is the next market hurdle.
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In today’s Daily Rundown video, Chris Versace reviews the Fed’s latest policy decision and set of updated economic projections, which continue to show 50 basis points of rate cuts this year. As Chris explains, while the cnetral bank is taking a wait-and-see approach when it comes to the impact of Trump tariffs, our thinking is the Fed’s June policy meeting and next set of projection updates will be the one that dictates how many rate cuts the Fed could deliver in 2025.
Chris outlines the next set of data TheStreet Pro Portfolio will be focusing on as it relates to the speed of the economy and inflation, and also reminds members that three earnings reports out Thursday will help set the tone for June-quarter guidance.
Transcript
CHRIS VERSACE: Hey, everyone. Chris Versace here. It is, Wednesday, March 19, Fed day. And as you may have seen by now, as expected, the Fed did leave the Fed funds rate unchanged. No major surprise. The Central Bank also updated its economic projections.
And this is where we start to see some movement in some indicators, but not, I repeat, not in their outlook for the Fed funds rate. That is still showing 50 basis points of cuts in 2025. Maybe it's two 25 basis point cuts, TBD. But we did see some other revisions as well compared to the December expectations that the Fed laid out.
So GDP has slowed to 1.7% this year, down from 2.1%. I think no surprise, given some of the more recent data that we've seen. The unemployment rate in December, it was 4.3%, now for 2025, 4.4%. And the core PCE inflation has moved higher to 2.8%. Back in December, the Fed was looking for 2.5%.
So again, when we look at these changes, not a lot of surprises. I would argue that given the tick up in the PCE inflation and the core PCE inflation for this year that it's a little surprising that the Fed still managed to keep two rate cuts, 25 basis points each, penciled in for 2025.
But I think that when we reflect upon Fed Chair Powell's presser comments about the degree of uncertainty in the market regarding tariffs, the impact, I would throw in, whether or not the full throttle effect of Trump tariffs and reciprocal tariffs are actually put into place. That's a question. So I can understand the Fed not wanting to jump the gun, telegraphing any changes in its policy until it has more data.
Having said that, though, then when asked during the Q&A, Powell did admit that the upward revision in core PCE and in the PCE inflation figures for 2025 include some degree of tariff inflation. How much? That's the big question. And when questioned about it, Powell said, look, it's very hard to determine. We're going to need to see more incoming data as we try to parse what is tariff related, what is not tariff related.
And I think ultimately, when we put it all together, the message that we kind of pick up in these comments and in the figures from the updated economic projections, Powell's comments, is that as much as folks were looking for some type of revelation in today's updated set of economic projections policy statement and Fed Chair Powell's comments, the reality is that when we think about the timing of additional tariffs, particularly in April, we do have six Fed meetings left in the year, with two more in the first half of the year.
So the first one is early May. The second one is in June. And I think as we kind of game it out a little bit, some folks might be thinking, well, it could it be the May policy meeting? We will have a lot more data by then, no question.
But if we think of the timing of the May policy meeting, May 7, very early in the month, relative to the expected tariffs in April, well, the reality is that we will not be getting enough April data in the month of May, before May 7, for the Fed to kind of decide what it may do. This leads me to believe that the policy meeting that we really have to pay attention to, that could really show the fuller impact of tariffs, is more likely to be the June policy meeting.
Now, here's where it gets a little sticky, right? If we look at the CME FedWatch tool, the market is kind of seeing still two, three rate cuts in 2025. The first is expected in June.
So for now, what are we going to do? Well, we're going to do what the Fed's going to do. We're going to continue to follow the data. But if we see more signs that inflation is remaining at elevated levels, that we're not seeing a lot of progress, it's going to lead us to conclude that perhaps the Fed will need to adjust the number of rate cuts it sees in 2025.
The market perhaps might get there faster than the Fed. We'll have to watch the CME FedWatch tool and other inflation tracking measures. But as we get closer to that time horizon for June, if there is a mismatch between what the Fed is likely to say and what the market expects, well, we will want to be carefully positioned for that.
So what's the next set of data for us to watch since we'll be tracking all of this? That's going to come on Monday when we get the flash March PMI report. Now, in that, it's going to be the first hard look in the month of March regarding the manufacturing, the services economy. We'll be looking at new orders, the employment numbers, and, of course, comments about inflation, whether it's input costs or output costs.
But I would also say, too, that before we get there, as we explained in our morning notes today, as much as the market was looking forward to what Powell had to say today, and again, based on what we heard from him, I think what we see tomorrow afternoon when we parse forward guidance from Micron, FedEx, Nike, that's going to be far more important.
We've talked about our concerns with you about the June quarter guidance that we could get relative to expectations. These three companies will help set the tone for what we're likely to hear. So we will be focusing in on those reports quite a bit, which means we'll have some very, hopefully, insightful comments to share with you on Friday morning.
With that, I would say, please, folks, continue to check your emails. Continue to check your alerts. We want to make sure you're getting our latest thoughts. And if we make any moves with the portfolio, we want to make sure that you are right there with us. Thanks for watching.
