As expected, the Federal Open Market Committee (FOMC) left the benchmark lending rate unchanged at 4.25%-4.50%. The official statement and updated Summary of Economic Projections (SEP) indicated that officials have grown more concerned about economic uncertainty than they were a few months ago. Federal Reserve Chair Jerome Powell admitted that tariffs are a large part of the uncertainty facing the Fed but not enough to force them to make any changes to monetary policy at this time. Powell repeatedly told reporters the Fed is “well positioned in the direction we need to move… at a place we can cut or hold if needed.” Note there was no mention of raising interest rates. The Fed believes any price changes due to tariffs could be temporary/transitory and they would rather wait and see what transpires rather than get ahead of tariffs. 

Fed officials lowered their projections for economic growth over the next few years and raised the key core inflation metric from 2.5% to 2.8% for this year. Longer-term core inflation projections remained unchanged at 2%. The Fed did not alter the path of the fed funds rate in the SEP, keeping projections at two cuts for each of the next two years, ultimately reaching 3% by 2028. Aside from interest rates, the FOMC will begin to slow the pace of decline of its securities holdings by $20 billion per month and begin reinvesting maturities into Treasury securities.

KEY INDICATORS THIS WEEK

Retail Sales– Consumers spent more on goods in February than in January, but not enough to call it a win for consumer spending. Retail sales increased 0.2% last month after a downwardly revised -1.2% measure in January. Seven of the 13 major categories posted a decline in sales, led by department stores, gasoline stations and restaurants & bars. Sales at auto dealers fell 0.4%, the second monthly decline. February sales were boosted by a rebound in internet shopping and at health & personal care stores. 

The weakness in retail sales is a cause for concern and will likely pull the first quarter GDP lower. CEOs at Walmart and Dollar General stores note that customers are becoming more selective about what they purchase and tend to focus on essential items only. Retailers including Target Corp. and Best Buy Co. have said they may have to raise prices because of Trump’s tariffs. 

NOTE: Behind the Numbers  will not be published next week. The report will resume on April 4, 2025 together with the monthly Market Overview and Data Report.