It seems like every time I go to write my next article, something new shows up that derails my plans. This week is no different. This time, it was The Federal Reserve shaking things up in 2025.
“We're not going to be in any hurry to move…” - Jerome Powell
Jerome Powell said that the Fed would not be cutting rates anytime soon, due to a slight jump in CPI and because “economic uncertainty around the economic outlook has increased.” He hinted at rates coming later in the year, but nothing concrete in the near term.
Another interesting result from the Fed meeting was a lowered economic forecast for 2025. The Federal Reserve Lowered its forecast from 1.8% to 1.7%, at this last meeting.
Their expectation cut was the largest of the analysts I could find (a 5.5% reduction from their previous estimate). All the analysts dropped their estimates except for Moodys, highlighting something we’ve been discussing for months now: Economic Slowdown. I’ve been using the “R” word for a while now, and this is just another piece of evidence of that.
But, what are the markets saying? How did the markets react?
Consumer Sentiment
Consumer sentiment numbers came in at 57.9 for March, a 10.5% from February’s reading of 64.7, and around a 27% drop from last March.
The Federal Reserve’s comments are likely to have a minimal effect on the downward trend in consumer optimism. Rate cuts “around December” will likely reverse the drop in consumer sentiment when they happen. In the meantime, the lowered economic growth prediction will drive consumer sentiment down for the next few months.
It’s important to remember that both consumer sentiment and economic growth predictions don’t exist in a vacuum, but the other numbers don’t look good either.
Jobs
We are starting to see the effects of low hiring in the last month. We saw modest job growth in February. However, when we move back out to a longer view, the trend shows us why both the Fed and consumers are concerned.
The rate of growth in new US jobs is slowing. Total employment grew by less than one percent according to the ST. Louis Fed’s data. Based on the data that we see in this graph, we appear to be reaching a local peak in employment. The reason why this matters is because gainful employment is a significant factor in the most important part of the US economy, consumer spending.
Consumer Spending
Consumer spending hasn’t fallen yet. On average, PCE has grown by 0.3% per month since last February, and real PCE has risen by 0.4% monthly. However, the growing deviation between PCE and real (inflation-adjusted) PCE can’t be ignored. As we’ve mentioned before, the inflation caused by increased spending in 2022 and 2023 is still affecting us today. If inflation rises more in 2025, we will see consumer spending drop.
Inflation Has Risen…A Little
Unfortunately for consumers, inflation did rise from January to February. I don’t believe it was enough to warrant keeping rates high, but it did rise.
CPI rose by 0.22% from January to February, to a value of 147 (from a 2009 Base Year). Year-on-year CPI has risen by 2.8%. This represents an immediate and critical problem for consumers due to the already high prices consumers have to pay. From a pure cost perspective, this is why both consumers and markets are concerned about tariffs moving forward. However, I believe that the slowing of consumer spending is not because of tariff threats, instead, it represents a weakening overall economy and insecurity about their financial future.
All of this insecurity leads to market uncertainty, and we have seen that in the annual returns from US equities.
US Markets
Weekly YoY returns have been falling most weeks since January, and all three indices put up large losses in the last three weeks. Even the new information released at NVidia’s GTC meeting didn’t seem to raise investors’ spirits. This is just another sign of the AI Trade unwinding, likely meaning more losses in the future.
Wrapping Up
The Federal Reserve meeting and rate decision left a lot of stakeholders disappointed and given what we see now in 2025’s new data, the economy is going to get worse before it gets better.
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Tyler Kreiling, WealthNWisdom, Founder and Head Editor
An insightful read, well written!
I’m always keeping an eye on treasury auctions in particular. Definitely gives us an idea of where mortgage rates will drift to.
Cheers!