As broadly expected, the Fed held rates steady for 2nd time in the 4.25%-4.50% range with the update dot-plot showing 2x cuts by year end but showing large forecast dispersion within the Committee and a more hawkish outlook compared to December (9 officials showing 2x cuts vs 8x showing 1 cut or less) while the median estimate of the Fed’s neutral rate was kept steady this time, because - as Powell explained later - the increase in inflation expectations and the drop in growth forecasts offset each other. 

The biggest highlights in the statement was the Fed's adjustment to the second paragraph of its statement, deleting the line “risks to achieving its employment and inflation goals are roughly in balance"; however in the presser that followed, Powell explained that this particular deletion - which would otherwise have a hawkish bias - did not mean to signal any change in policy or sentiment.

According to Goldman, the noteworthy takeaways are within the SEPs due to a "Stagflationary flavor" driven mostly by a meaningful downgrade to real GDP in ’25 to 1.7% (vs 2.1% prior) and ’26 at 1.8% (vs 2.0% prior) vs higher inflationary forecasts with core PCE revised higher in ’25 to 2.8% (vs 2.5% prior) but then dropping back in ’26 to 2.2% (unch from Dec). According to UBS, this is dovish as it means "the Fed thinks tariffs may be a one-time shock on inflation."
The bank also cautioned that below trend GDP still leading to higher inflation is "not a good message for any economy." The median forecast also showed a higher unemployment rate in 2025 (+0.1pp to 4.4%). Goldman calls this the "Tariffs effect."

UBS also notes that in this context, the dot plot, which held to two cuts for this year, is consistent with the growth outlook, but is a tough sell when set against the inflation outlook.

There were no huge surprises within the Statement with acknowledgements of ‘uncertainty around the economic outlook has increased’ while removing language saying risks to achieving inflation and employment goals are ‘roughly in balance’.  

Despite these SEPs, which as we said, was the sole dovish indicator ahead of Chairman Press far more Dovish press conference which slammed and told the press to basically ignore the ridiculous UMich inflation estimates inflated by Democrat responses, somewhat substantiating the ‘bad is good’ latest theory around econ data.

FOMC summary so far:

Statement: hawkish
Economic projections: mixed (stagflationary)
Dots: hawkish
QT taper: dovish

— zerohedge (@zerohedge) March 19, 2025

Gov Waller dissented to the FOMC decision to taper QT down to $5bn Treasuries/month (from $25bn/m prior). Here Goldman chimes in that while it expected the FOMC to slow the pace of runoff at the May meeting, it expected the Committee to taper the pace of QT by slowing the pace of Treasury runoff for some time, as debt ceiling dynamics obscure the signals in money markets. The bank continues to expect runoff to end at the end of Q3.

At the Presser, Powell tied inflation ‘expectations’ (i.e. survey based) to policy changes in trade, immigration and fiscal and reiterated no hurry to adjust rates (as widely expected) so unsurprisingly got hit by questions on how much those mattered to revised forecasts: "a good part" he said.  

Would they look through a "one time shock" the press corps asked? The answer: Only if longer term expectations are well-anchored as they are today (here Powell said to basically ignore the outlier prints from the UMich inflation survey). 

Meanwhile, there was a nod to moderation in consumer spending but hard data still ‘solid’ with job creation at ‘healthy levels’. 

Powell observed that Trump's proposed policies are generating “unusually elevated” uncertainty, and that inflation expectations appear to be responding to tariff discussions. Specifically Powell said:

• Recent indications, however, point to a moderation in consumer spending.

• Surveys of households and businesses point to high uncertainty about the economic outlook.

• Some near-term measures of inflation expectations have recently moved up.

• Consumers and businesses are mentioning tariffs as a driving factor.

Regarding the QT tapering decision, Powell said market indicators continue to suggest that the quality of reserves is abundant - but they have seen signs of increased tightness in money markets. Still, the QT tapering decision is not relevant to their monetary policy stance the Fed chair noted.

On Inflation again, multiple mentions of "transitory", which is consistent with updated core PCE forecasts above but gives scary pandemic flashbacks, and re-iteration that appropriate stance is to wait and hold given potential risk of further progress on inflation likely delayed by Tariffs. 

Powell said some of the FOMC's upside projection on core PCE is related to tariffs. However, it is difficult to gauge if inflation pass-through from tariffs is one-off. Most importantly, perhaps, the Fed chair said that "slower growth may offset the tariffs-related inflation."

On Employment, Powell sees it as pretty close to its ‘natural level’ and broadly sounded constructive here. Given sharp selloff of the past weeks, the tape shows marginal signs of relief with SPX near session high vs 2YR & DXY near sessions lows.

Echoing an observation made earlier today by Bank of America, Powell said hard data has been solid while soft data has been far weaker; but historically the relationship between the survey data and economic activity hasn't been very tight. There are times people are saying very downbeat things about the economy and then going out and buying a new car.

Powell also clarified that the SEP forecast assume full retaliation from other countries, and that underlying inflation before tariffs was about 2.5%. In other words, if Trump succeeds in winning the trade wars quickly, he could spark an unprecedented market meltup...

The highlight of the presser was Powell dunking on the ludicrous UMichigan inflation expectations, which have demonstrated a record partisan divergence.

Here, Chair Powell said the longer-term inflation expectations are well anchored, and mentioned the New York Fed inflation expectation survey and 5y5y breaks while dismissing the "outlier" prints from the University of Michigan survey. Here UBS trader Sienna Combs said that "if anything, Powell soundrs a little unexpectedly sanguine to me when addressing longer-term inflation expectations, though that narrative fits most nicely with leaving so much of the SEP/dots unchanged in the longer run."

And just to make sure that the politically charged UMich survey gets zero weight going forward, in response to a pointed follow up question about the University of Michigan inflation survey, Powell said there is no way he will put high weights on that survey as it is an outlier. Sorry Justin Wolfers.

Dunk on UMich is perhaps the biggest reason why the OIS market priced in 64bp of Fed cuts in 2025 by the end of the Powell presser, 10bp more since the release of FOMC statement at 14:00 New York.

Commenting on the big picture, UBS summarized the message as "Yields Down, Equity Up: A Glimpse Of The Fed Put In The Messaging Perhaps" adding "Dare anyone say “Fed put”. Perhaps not quite, but the Fed’s message is consistent with its work from September 2018 – that reacting to the inflationary consequences of tariffs only makes the growth hit worse than it needs be. Not quite the "Fed put" the markets have been hoping for, but in the scheme of things, the outcome of the Fed is a little more dovish than the market had expected. The Fed shrugging off the inflationary signals from its models and instead preferring to line the dot plot up with the growth deterioration."

Turning to Goldman's End of Day recap, the bank said that the highly anticipated FOMC meeting "ended with little surprise", as FOMC participants indicated a consistent 2 dots for 2025. Goldman trader Mike Washington said that the "market was looking for a reason to rally and seems to have found it (at least temporarily) with Powell commentary saying the right things...."Mich inflation expectations an outlier, hard data still pretty solid, recession risk increased but still not high".

Turning to markets, the bank notes that it was a much better day at the index level (367 names in the S&P finishing in the green) and in fact it was the best FOMC day going back to 2022, with S&P ticking back above Monday highs & the 200dma back within context (5746 is the level to watch). Price action pre-FOMC felt squeezy and a bit pension rebalancey despite month-end being a week away. Early rally supported by the old cohorts + a ton of retail markings, with Bitcoin Sensitive Names, High Beta 12M Winners, Non-Profitable Tech, Liquid Most Short and the Goldman Retail Favs basket all at the top of the leader board and up over +2%. The Cyclicals vs Defensives pair had its largest 1d % rally YTD (+168bps).

Yet despite a pickup in activity post FOMC, overall market volumes tested YTD lows with ~13.5b shares traded, well below the YTD avg of 15.5B.  As we have noted before, poor S&P top of book liquidity continues to be a theme, hovering just around $2 million today, well below the 1-yr avg of ~$13mm. 

Liquidity update: none pic.twitter.com/A4LKXEwMqW

— zerohedge (@zerohedge) March 17, 2025

As a reminder, US Pensions are modeled to BUY $32bn of US equities for quarter-end (thus -$32bn for sale in FI). The $32bn to buy ranks in the 92nd percentile amongst all buy and sell estimates in absolute dollar value over the past three years and in the 93rd percentile going back to Jan 2000. 

At the same time, CTAs are now a tailwind, with the group large projected buyers, with 1w flat tape = $8.3bn to buy, and 1m flat tape = $22bn to buy. Worth noting that the flat tape demand is largely from outside the US (topix and kospi). To put into context how dramatic the rotation out of US and into EU has been, CTAs are now short -$34bn of US equities vs long $52bn of European equities: that spread is the largest we have ever seen by a decent margin.   

 
Bottom line from Goldman on the FOMC: 

2 cut dot plot this year, 2 next year, and 1 after. The FOMC left the target rate unchanged at 4.25-4.50% at its March meeting and decided to slow the pace of balance sheet runoff by $20bn per month (good for stocks, this was consensus and now confirmed) by lowering the monthly cap for Treasury runoff from $25bn to $5bn per month. The Committee updated the post-meeting statement to note that “uncertainty around the economy outlook has increased.” The median projection in the Summary of Economic Projections (SEP) showed an unchanged fed funds rate path relative to the December SEP. The median forecast showed higher core inflation and unemployment rate forecasts in 2025 and a lower GDP growth forecast for 2025-2027. Market liked Powells comments during the presser noting “"fears of a recession have moved up, but its not high".

Goldman says that overall activity on its floor was a 5 on a 1-10 scale. The floor finished -378bps better for sale vs a 30-day avg of -104bps. LO’s finished -2BN net for sale (for the second day in a row), with supply heavily concentrated within Industrials, followed by Hcare. LOs were net buyers of Energy + Macro products. HF cohort continues to be much quieter, with flows more balanced- the group finished ~$300m net for sale. HFs sold Fins and Macro Products.  

Finally, as previewed earlier, heading into today’s FOMC meeting, the SPX straddle for the day was 1.1% (you'll never guess where the S&P closed). This was elevated but not out of context for recent meetings, as the average move priced into last 4 FOMC meetings was +/-0.8%. 

On the sharp move higher post open, Goldman derivs team saw clients add short, dated downside and monetize short dated upside ahead of the 2pm meeting. They also saw some interest in hawkish fed plays in the form of TLT downside.

Following an in-line report, the market continued to rally as Powell addressed the media and vol got crushed. The VIX fell below 20 for the first time in ~2 weeks.

And now, the focus turns to the micro side as the market awaits earnings from NKE, FDX, MU (all Thurs), and CLL (Fri). The straddle for the rest of the week is 1.28%.