Walking the Tightrope
- David Halseth
- Mar 23
- 2 min read
For the week ended 3/22/2025.
If Jerome Powell ever wanted a side gig, he might consider circus work—because right now, he and his FOMC crew are working without a net. The Fed has officially kept its pause on rate cuts intact, opting for a cautious wait-and-see approach as it tries to square the circle of slowing economic growth and the inflationary threat of potential tariffs. For now, the baseline federal funds rate holds steady at 4.25%–4.50%—a safe harbor in uncertain waters.
In a notable shift, just 11 of the 19 Fed policymakers now project at least two rate cuts in 2025, down from 15 back in December. Wall Street, too, is slowly dialing down its rate-cut fantasies. And while it might sound contrarian, this author is planting a flag on the hill: a rate hike may not be as far-fetched as the consensus assumes. (Remember, I’ve zigged when others zagged before—see the 12/01/24 MMM edition: "Best Month of the Year”)
Meanwhile, behind the scenes—and largely under the radar—the Fed has quietly been continuing its quantitative tightening. That means rolling off its holdings of Treasuries and mortgage-backed securities, a balance sheet bloat born out of previous stimulus efforts, especially during the COVID era. Now, even this runoff is slowing. Translation: while the headline-making interest rate remains untouched, the Fed is still tinkering under the hood in its quest for the elusive soft landing.
Markets seemed to breathe a bit easier over the past five trading days. Foreign equities led the charge, gaining 1.0%, while U.S. stocks climbed a more modest 0.5%. Bonds joined the party too, rising 50 basis points. Year-to-date, it’s shaping up to be a tight race between foreign stocks (+8.3%) and commodities (+7.6%). U.S. equities, however, are still in the red at -3.3%.
As always, the American consumer remains the linchpin. This week brings fresh data: consumer confidence lands Tuesday, and the first look at Q4 GDP arrives Thursday. Stay tuned.
And with that, may your coffee be strong, your forecasts sharper than your pencil, and your enjoyment of this glorious spring weather be guilt-free—we're nearly through the first quarter already.
Interesting data point of the week.
Comments