AAP Podcast #27: Breaking Down the Fed’s March Monetary Policy Decision

In this week’s AAP Podcast, lead portfolio manager Chris Versace is joined by AAP team member Bob Lang to discuss the Fed’s March monetary policy statement and comments made during Fed Chair Powell’s corresponding press conference. In a prior note to members, we shared our initial reactions to the policy statement and updated economic projections, but as we learned during the presser, the Fed does not see any rate cuts ahead in 2023. As we’ve been sharing that disrupts the current market narrative depicted in the CME FedWatch Tool, and those comments led the market to turn down.

 

Moreover, depending on the impact of tighter credit conditions, the Fed could do more than telegraphed in its updated economic projections for the fed funds rate. The tighter credit conditions reflect the fallout from recent bank failures, which as Powell said could act as a rate hike to the fed funds rate. However, because we are still in the early days of those tighter credit conditions, the full impact will take more time to understand. This means the market didn’t receive a definitive answer as to when we are likely to reach the terminal level for the fed funds rate. It also means we must continue to watch the labor market and upcoming inflation data. Powell confirmed what we’ve been saying to you, that recent inflation data was running hotter than expected, and based on the updated economic projections both the core PCE and PCE inflation metrics aren’t expected to hit 2.5% until the end of 2024.

 

We discuss all of that in much greater detail, and Bob runs through the technical levels he’s watching for the S&P 500. We also share the two things that surprised us between the March policy statement, Powell’s comments, and the updated economic projections.