THE FED
As expected, the Federal Reserve (Fed) kept interest rates unchanged at 4.25%-4.50%. According to the Fed statement, economic activity continued to expand at a “solid pace” while unemployment has “stabilized at a low level” and inflation remained “somewhat elevated.” The Summary of Economic Projections (SEP) shows the committee now expects higher inflation and slower growth, but no change to the median forecast for policy. The inflation outlook for 2025 increased, with the personal consumption expenditures (PCE) forecast rising to 2.7% from the previously projected 2.5%, yet the expectation of achieving the 2% target by 2027 remains unchanged. The growth outlook was revised down to 1.7% in 2025 and 1.8% in 2026 from 2.1% and 2.0%, respectively. Overall, the committee continues to expect two rate cuts in 2025, although some members think the rate will have to remain higher for longer. In his post- meeting remarks, Chairman Powell noted that uncertainty is “unusually elevated,” driven in part by the potential impact of tariffs and other policy changes with the new administration. Powell added that policy is well positioned and that the Fed is not in a hurry to adjust its policy stance.
Our Take: Given the greater uncertainty at the Fed, it is no surprise policymakers kept rates unchanged. With a more stable labor market and inflation remaining stubbornly above target, the pace of future rate cuts is unclear. For now, the Fed can be patient as it continues its careful, data-driven approach to policy normalization.
RETAIL SALES
Headline February retail sales rose 0.2% after a bad January number, well short of the expected 0.6% increase. Sales ex autos and gas were better than expected, and control group sales were up 1.0% against an expectation of +0.4%.
Our Take: Consumer surveys have shown softening in consumer sentiment, and the February retail sales are the first hard data report lending credence to the surveys. There is a lot of noise in the data, especially considering the level of bounce back from wildfire and weather depressed January numbers.
MUNICIPALS
Moody’s Ratings lowered its outlook for the US higher education sector to negative from stable. Moody’s cited “cuts to research funding, enforcement actions against diversity programs, staff reductions at the US Department of Education,” along with the possibility of changes to university endowment taxes and uncertainty about financial aid as reasons for the outlook change.
Our Take: Moody’s issued an optimistic forecast of revenue growth within the sector last December. However, recent changes and new Trump administration policies have led to the lowered sector outlook. Uncertainty will likely remain as the policies evolve.