“Transitory” is back!
The Fed stuck to their highly data-dependent stance and continues to expect 2 more interest rate cuts of 0.25% each for 2025.
The US Federal Reserve kept interest rates unchanged as widely expected. They revised their 2025 median projections for inflation (to +2.7% from December’s projections of 2.5%) and the Unemployment Rate (to 4.4% from 4.3%) higher, and for GDP growth lower (to 1.7% from 2.1%) citing trade tensions and policy uncertainties as contributing factors.
Interestingly, the Fed Chair Powell said in his press conference that inflation that is caused by price rises due to tariffs may be transitory and is not something that will need the Fed to respond to with policy action. The Fed stuck to their highly data-dependent stance and continues to expect 2 more interest rate cuts of 0.25% each for 2025.
They also reduced their balance sheet reduction by lowering the cap of monthly redemptions for Treasury securities from $25 billion to just $5 billion starting from April. This slowing of quantitative tapering is dovish as more liquidity will remain in the system for longer.
With the more dovish than expected tone from the Fed, risk assets did well with US stocks rising more than 1% in response. If inflation continues to undershoot expectations as it has in recent weeks, expect risk sentiment to improve as a result.
Tradertainment
The Accidental Invention of the Ice Cream Cone
Few culinary inventions were as unplanned—and delicious—as the ice cream cone. At the 1904 St. Louis World’s Fair, ice cream was already a fan favorite, but vendors faced a problem: demand was so high that they ran out of serving dishes.
Ernest Hamwi, a nearby waffle vendor, saw an opportunity. He quickly rolled up his thin, crispy waffles into cone shapes, allowing ice cream vendors to scoop their frozen treats inside. Customers loved the idea, and just like that, the ice cream cone was born.
What started as a moment of desperation became a global staple. Today, over 2 billion ice cream cones are consumed annually, proving that sometimes, necessity really is the mother of invention—and of sweet, crunchy delights.
Day Ahead
United Kingdom:
Unemployment Rate (Jan): Previous: 4.4%; Forecast: 4.5%
Bank of England Interest Rate Decision: Current: 4.5%; Forecast: 4.5%
Trading Plan
1. Currencies:
Neutral for now.
2. Commodities:
Gold - Gold continues to grind higher.
Uranium & Energy - Stay invested for now.
3. Stocks:
US Stock Index: The US stock market climbed higher as the Fed dot plots indicated that another 2 interest rate cuts (of 0.25%) are likely to happen this year and that inflation arising from tariffs may be transitory.
(For more timely info on our Trading plan, click HERE)
Single Stocks: TrackRecord Model Portfolio is tracking the broader market for now.
Key risks: No impactful data point for the day ahead. Focus will be on the situation between Ukraine, Russia and the US.
What Happened Yesterday
Market Movements as of New York Close 19 Mar 25
Economic Data:
Euro Area:
Inflation Rate YoY Final (Feb): 2.3% Actual vs 2.4% exp and 2.5% prev
Core Inflation Rate YoY Final (Feb): 2.6% Actual as exp vs 2.7% prev
Lower than expected inflation is good for risk sentiment. Reaction in the EURUSD was muted.
United States:
Federal Reserve Interest Rate Decision: Maintained at 4.5% as expected
The Fed lowered its 2025 GDP growth forecast to 1.7%, down from December's 2.1% projection, citing trade tensions and policy uncertainties as contributing factors.
The inflation projection for 2025 was raised to 2.7%, up from the previous 2.5% estimate, due to anticipated tariff effects.
The unemployment rate is expected to edge up to 4.4% in 2025 and 4.3% in 2026, slightly higher than earlier forecasts of 4.3% for both years.
The Fed announced a slowdown in its balance sheet reduction, reducing the monthly cap on Treasury securities redemptions from $25 billion to $5 billion starting in April, aiming to support economic stability amid prevailing uncertainties.
The redemption cap on agency debt and mortgage-backed securities will remain at $35 billion.
Powell stated that the Fed does not feel pressured to adjust monetary policy imminently. He highlighted the importance of awaiting clearer economic indicators before making further decisions, underscoring the heightened uncertainty surrounding the economic outlook. He also said that inflation that is due to price rises caused by tariffs may be transitory.
The updated "dot plot" suggests two additional rate cuts this year, aligning with the December 2024 forecast.
In 2026, officials see two additional cuts, bringing the fed funds rate down to 3.4%, matching December.
U.S. Stock Market:
The U.S. stock market climbed higher as the Federal Reserve forecast it would still cut interest rates two times in 2025.
S&P 500: rose +1.08% (intraday high: +1.79%, low: +0.13%)
Dow Jones Industrial Average: gained +0.92% (intraday high: +1.44%, low: +0.08%)
Nasdaq 100: increased +1.30%, (intraday high: +2.25%, low: +0.07%)
Global Markets:
Asia:
The Chinese market traded mixed with the Hang Seng slightly down and the China A50 up.
Cryptocurrency Market:
Cryptocurrencies traded higher due to improved risk sentiment across the board.
Foreign Exchange (FX) Market:
The USD traded slightly higher as the Fed kept rates unchanged.
Headlines & Market Impact
‘Transitory’ is back as the Fed doesn’t expect tariffs to have long-lasting inflation impacts
Notable Snippet: The “good ship Transitory,” despite an ominous record, appears ready to sail again for the Federal Reserve.
Economic projections the central bank released Wednesday indicate that while officials see inflation moving up this year more rapidly than previously expected, they also expect the trend to be short-lived. The outlook spurred talk again about “transitory” inflation that caused a major policy headache for the Fed.
At his post-meeting news conference, Chair Jerome Powell said the current outlook is that any price jumps from tariffs likely will be short-lived.
Asked if the Fed is “back at transitory again,” the central bank leader responded, “So I think that’s kind of the base case. But as I said, we really can’t know that. We’re going to have to see how things actually work out.”
However, the Federal Open Market Committee outlook, with inflation hitting 2.8% in 2025 but quickly receding back to 2.2% then 2% in the succeeding years, indicates that officials do not expect a lasting burden from the tariffs.
“It can be the case that it’s appropriate sometimes to look through inflation, if it’s going to go away quickly, without action by us, if it’s transitory,” Powell said. “That can be the case in the case of tariff inflation. I think that would depend on tariff inflation moving through fairly quickly and, critically, as well on inflation expectations being well anchored.”
Powell added that while sentiment surveys show some short-term inflation indicators have risen, market-based measures for longer-run expectations are well-anchored.
What we think: Powell’s renewed use of “transitory” suggests the Fed sees tariff-driven inflation as a short-term issue, avoiding aggressive rate hikes. However, markets may remain skeptical, given past misjudgments on inflation persistence.
China’s central bank follows U.S. Fed in keeping rates steady as tariff threats pressure yuan
Notable Snippet: China kept its key lending rates unchanged on Thursday, as Beijing juggles propping up growth and stabilizing its currency amid mounting trade frictions.
The People’s Bank of China kept the 1-year loan prime rate at 3.1% and the 5-year LPR at 3.6%, where they have been since a quarter-percentage-point cut in October.
The rate decision follows the U.S. Federal Reserve’s move to hold benchmark interest rates. Fed officials, however, indicated likely half a percentage point of rate cuts through 2025.
China’s LPRs — normally charged to banks’ best clients — are calculated monthly based on designated commercial lenders’ proposed rates submitted to the PBOC. The 1-year LPR influences corporate and most household loans in China, while the 5-year LPR serves as a benchmark for mortgage rates.
The PBOC has kept its 7-day rate, the country’s main policy rate, steady at 1.5% since a cut in October, as the central bank defends the yuan that faces downward pressure amid threats of higher tariffs.
China’s top officials have pledged to ramp up monetary easing measures this year, including interest rate cuts “at appropriate times,” as Beijing has set an ambitious growth target of “around 5%.”
While the cuts are yet to materialize, analysts anticipate any policy measures by the PBOC are likely to hinge on U.S. President Donald Trump’s trade policy moves.
What we think: The PBOC’s decision to hold rates reflects its balancing act between supporting growth and stabilizing the yuan. With trade tensions escalating, China may be forced into easing later in the year to sustain its ambitious 5% GDP target.
New Zealand exits recession as fourth-quarter growth beats forecasts
Notable Snippet: New Zealand's economy grew faster than forecast in the fourth quarter, dragging the economy out of recession, but the improvement is not expected to change the central bank's planned official cash rate cuts.
Government data released on Thursday showed gross domestic product rose 0.7% in the December quarter from the prior quarter, better than analysts' expectations of a 0.4% increase and the central bank's forecast of 0.3%. The growth followed a revised 1.1% contraction in the third quarter.
Annual GDP decreased 1.1%, Statistics New Zealand data showed. The market had expected a fall of 1.4%.
Market reaction to the GDP data was muted, with the New Zealand dollar rising to $0.5821 from $0.5811 ahead of the release.
New Zealand's central bank has cut the official cash rate by 175 basis points since August 2024 to 3.75% and in February foreshadowed two further 25-basis-point cuts in April and May, with a possibility of a third cut later in the year.
Michael Gordon, senior economist at Westpac, said in a note that he believed these GDP figures favoured the view that the central bank is more likely to cut the rate just twice more.
The improvement in growth will provide some welcome relief to policymakers keen to put the economy back on a solid footing after it sank into a technical recession in the September quarter. The two-quarter GDP decline was the worst outside of the pandemic since the sharp downturn of 1991.
Statistics New Zealand said 11 of the 16 industries increased in the fourth quarter. The largest rises were from rental, hiring and real estate services, retail trade and accommodation and healthcare and social assistance. It added that higher spending by international visitors had also boosted tourism-related industries.
What we think: Exiting recession with stronger-than-expected growth eases pressure on policymakers, but the global trade situation may have further implications if it worsens.
Sentiment
FX
Stock Indices
Best,
Phan Vee Leung
CIO & Founder, TrackRecord