To The Moon

Wednesday's FOMC meeting largely aligned with our expectations from yesterday.

• Wednesday Focus: FOMC Would be Neutral But Equity Remain Expensive

The dot plot essentially built upon the December projections while incorporating recent macroeconomic trends, and Powell’s key message was to "continue monitoring policy developments." With this risk event now settled, the $Cboe Volatility Index(VIX)$ retreated to 20, helping to lift the market.

Let’s see the Wallstreet’s views on Fed’s Dovish Message first:

• $JPMorgan Chase(JPM)$ : Rate unchanged, future moves depend on next three months.

• $Goldman Sachs(GS)$ : Fed in wait-and-see mode, monitoring growth slowdown.

• $UBS Group AG(UBS)$ : Tariff price hikes seen as temporary, doveish forecast.

• BMO Capital Markets: Powell faces potential data challenges in May.

• $Deutsche Bank AG(DB)$ :Market expected hawkish message, but Fed remains doveish.

• $ING Groep NV(ING)$ : Fed downgrades growth, considers higher inflation due to trade war.

A quick comparison of the latest dot plot with December's projections shows the following changes:

• Inflation: Expectations were revised upward. Core PCE for 2025 is now forecast at 2.8% (previously 2.5% in December), and overall PCE at 2.7% (previously 2.5%). The 2026-2027 forecasts remain at 2.2% and 2.0%, indicating that inflation is cooling more slowly than expected and remains sticky.

• GDP: Growth expectations were revised downward. The 2025 forecast is now 1.7% (previously 2.1%), and 2026 is at 1.8% (previously 2.0%). The 2027 estimate remains at 1.8%.

• Unemployment Rate: Slightly revised upward. The 2025 forecast is now 4.4% (previously 4.3%), while 2026-2027 remains at 4.3%, suggesting a cooling labor market but no severe deterioration.

• Target Rate: The federal funds rate projection remains unchanged at 3.9% for 2025, 3.4% for 2026, and 3.1% for 2027. The long-term rate remains at 3.0%, but the forecast range has widened.

Source：FOMC

During Powell’s press conference, Associated Press journalist Chris Rugaber asked:

"As you know, I wanted to go back to consumer sentiment, particularly the inflation expectations in the University of Michigan survey. In the summer of 2022, you cited the rise in the long-term inflation expectations in that index as the reason that you went big with a 3/4 point hike. So I know you've talked about all the different measures now, but you seem to not be placing the same weight on that. And so I'm just wondering, are you dismissing what we saw last week from the University of Michigan, or does that carry the same weight as it did in the past?"

Powell responded:

"So I mentioned it back then, but in no way did I place a huge weight on it. I think that was an ex-post story, but it wasn’t the case—that was a preliminary reading, and so is this. And it’s also—this is that Michigan, the one you’re referring to, the longer-term thing—you know, we look at it, we don’t dismiss data that we don’t like, we force ourselves to look at it. But it is an outlier compared to market-based and compared to other survey-based assessments of longer-run inflation expectations. So we got to keep that in mind. And again, I would just say, we look at all of them, and that one's kind of an outlier, but you know, nonetheless, we take notice of it.”

It appears that the Fed also acknowledges that the University of Michigan survey has become unreliable due to its small sample size and respondents' political biases, making it less useful as a reference.

Finally, in the interest rate market, according to CME FedWatch, the market’s expectation for rate cuts in 2025 has increased to 2.62 cuts from 2.36 cuts yesterday.

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