Powell & Co. Remain Dovish

Powell & Co. were more dovish today than we (and stock investors) expected. The FOMC's Summary of Economic Projections (SEP) still implied three 25bps cuts in the federal funds rate (FFR) this year (table). That's the same projection as in December's SEP even though the median forecast was raised for real GDP growth (to 2.1% from 1.4%) and the core PCE inflation rate (to 2.6% from 2.4%). The FFR is expected to be lowered to 3.1% by 2026, above the longer-run rate of 2.6% (revised up from 2.5%), which is only 0.6% above the FOMC 2.0% projection of the longer-run inflation rate.

The S&P 500 rallied to a new record high as Fed Chair Jerome Powell confirmed the dovish posture of the FOMC during his presser today. The FOMC statement noted: "The Committee does not expect it will be appropriate to reduce the [FFR] target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent." However, two weeks ago in congressional testimony and during his presser today, Powell reiterated that "if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year."