Latest / Markets with Megan: A Quick Financial Markets Update / Fed's Mixed Signals: Growth Up, Rates Down | S2 E079 | 09-17-25

Transcript

Fed's Mixed Signals: Growth Up, Rates Down | S2 E079 | 09-17-25 · Markets with Megan: A Quick Financial Markets Update

• 0:01
  Megan Horneman: Well, the market got what it wanted with that Federal Reserve interest rate cut.
• 0:04
  Megan Horneman: Today it's Wednesday, september 17th, and this is Markets with Megan.
• 0:07
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• 0:10
  Megan Horneman: Hit that alarm bell.
• 0:11
  Megan Horneman: You can share it with friends, family or colleagues.
• 0:13
  Megan Horneman: But we're here today to break down the details that we got out of that Federal Reserve meeting.
• 0:18
  Megan Horneman: And, as expected, the Federal Reserve cut interest rates for the first time since last September and they cut interest rates by 25 basis points and the expectation in their dot plots, or where they give their estimates for the Federal Reserve over future months, is for two more rate cuts of 25 basis points apiece this year.
• 0:40
  Megan Horneman: But let's look at the details, and this is where we break down the economic projections that the Federal Reserve gave and we compare them to what they expected at their June meeting.
• 0:50
  Megan Horneman: So, compared to June, they did upgrade their expectation for GDP both this year and next year.
• 1:00
  Megan Horneman: We're not going to focus too much on 27 and 28.
• 1:03
  Megan Horneman: Instead, we'll look at this year and next year.
• 1:04
  Megan Horneman: So their GDP estimate for 2025 was notched up from 1.4 to 1.6.
• 1:12
  Megan Horneman: And then next year it also got upgraded from 1.6 to 1.8.
• 1:18
  Megan Horneman: Let's look at some of the other details.
• 1:19
  Megan Horneman: One of their mandates.
• 1:26
  Megan Horneman: The unemployment rate.
• 1:26
  Megan Horneman: They expect the unemployment rate to be 4.5%.
• 1:28
  Megan Horneman: This is the median estimate for this year.
• 1:29
  Megan Horneman: They downgraded the median estimates for next year from 4.5% to 4.4%.
• 1:33
  Megan Horneman: So better GDP, lower unemployment rate.
• 1:37
  Megan Horneman: When it comes to the core PCE inflation, that remained unchanged from their June meeting.
• 1:43
  Megan Horneman: They expect a median estimate to be about 3.1% for this year, but they upgraded core inflation for next year from 2.4 to 2.6.
• 1:51
  Megan Horneman: So what do we take from that?
• 1:54
  Megan Horneman: It's a little confusing because not only did they upgrade growth, reduce their expectation from the unemployment rate, upgraded inflation, all compared to June, but then expect more interest rate cuts for this year and next year.
• 2:09
  Megan Horneman: And again, these are the median forecasts from the members and I know there's some noise around a new Fed member who is very dovish coming on the committee, but still, look at the trajectory and the path here.
• 2:22
  Megan Horneman: It doesn't make a ton of sense.
• 2:24
  Megan Horneman: The one thing that Federal Reserve Powell said was that this is not an indication of consecutive interest rate cuts or hikes.
• 2:33
  Megan Horneman: They basically told us, reminded us, this is a meeting to meeting.
• 2:36
  Megan Horneman: The economic data is very fluid, but their risks now are more balanced.
• 2:41
  Megan Horneman: They see inflation is remaining elevated, but they just aren't quite sure what the tariff impact will be.
• 2:47
  Megan Horneman: They said it might be short term, it might not be, they don't know yet.
• 2:51
  Megan Horneman: They said the labor market is a concern, and we've noted that.
• 2:55
  Megan Horneman: So we do think it does warrant some modest tweaking.
• 2:58
  Megan Horneman: But these forecasts just don't make a ton of sense to me.
• 3:01
  Megan Horneman: In our opinion, inflation has improved substantially from where we were, but we're seeing the trajectory go the other way and we're seeing inflation pressures start to tick up.
• 3:11
  Megan Horneman: If you get too dovish as a Federal Reserve chairman or the investors, the markets take this rate cut as super dovish and they expect a bunch of more interest rate cuts that can also fuel inflation.
• 3:25
  Megan Horneman: We've seen this story happen before, so we're a little cautious here.
• 3:29
  Megan Horneman: The markets rallied substantially the equity markets as soon as the announcement came out, but they did pull back, basically flat for the day on the S&P 500 and the NASDAQ after the press conference and after we absorbed some of those comments from the Fed chair.
• 3:45
  Megan Horneman: But you're seeing a little bit of a sell off in interest rates, meaning interest rates are moving higher, and that's because the bond market is worried about inflation as well and worried about what a dovish statement can do to inflation.
• 3:58
  Megan Horneman: Now, that's all that we have today.
• 4:00
  Megan Horneman: The last piece of economic data that we'll be back to talk about will be tomorrow, and that's the leading indicator index.
• 4:06
  Megan Horneman: Again, this hasn't really been as predictive of recessions or economic downturns as it has in the past, but it is a good way to look at a variety of different factors in the economy and the bond markets really, as far as seeing where we may see the future path of economic growth.
• 4:24
  Megan Horneman: Thank you very much, and if you like this podcast, please go to marketswithmeganfm.