The headline from the Fed meeting today is that the median of their Survey of Economic Projections (SEP) shifted from expecting three cuts by the end of this year on March 20 (two meetings ago) to just one cut today; up 50 basis points. The mean, which I always think is relevant despite economists’ practice, shifted up a much smaller 26 basis points.

In a way, this is old news because interest rate markets had already reduced the amount of cuts priced-in from when the last projections were made by 38 basis points (See table below.) Take an average of the median and mean methodologies above, and the Fed’s “ballpark” expectation changed by what the market already had. In other words, the change in the SEP today was to catch up to the market, not indicate a pivot or new thinking.

The press conference with Jerome Powell didn’t add much new information either with most of the questions trying to find meaning in slight discrepancies within the projection materials (SEP.) For example, in response to a question by Michael McKee of Bloomberg on why, if the Fed forecasts economic variables to stay roughly the same by the end of 2024, would they be cutting rates too? Powell responded with his most transparent acknowledgement of the business cycle I’ve seen; expecting future weakness [my bolding],

“We think policy is ultimately restrictive and we think ultimately that if you set policy at a restrictive level, eventually you will see real weakening in the economy. The thought has always been that since we’ve raised rates this far, we have always been pointing to cuts at a certain point. Not to eliminate the possibility of hikes, but no one has that as their base case, no one on the committee does. So that is how we think about it and that is what we have been getting, is good progress on inflation, with growth at a good level, and with the strong labor market. Now, ultimately, we think rates will have to come down to support that. That so far, we haven’t had to and that is where we are watching so carefully for signs of weakness.”

Overall, I didn’t perceive a new hawkish pivot from the Fed; just that they are data dependent (i.e., without bias) in roughly the same way that interest rate markets already have been. The future for interest rates and the Fed will be driven by how economic data evolve. I expect more weakness because the Unemployment Rate has already risen 0.6% and will negatively affect the consumer.