Another yawner of a Fed meeting on Wednesday but there were some changes to the outlook based on tariffs. The Fed maintained the federal funds rate at 4.25%–4.5%, marking the fourth consecutive meeting without a change, as expected. One notable is that they dropped ‘stagflation’ from this statement in a positive sign that the economy is expanding at a ‘solid pace’.
Chair Jerome Powell’s press conference emphasized a cautious, data-dependent approach amid heightened economic uncertainty.
The “dot plot” released at this meeting projects two rate cuts this year. However, the 2026/2027 projections were revised higher, signaling a slower easing path. Only one cut is expected in 2026, down from two at the March meeting.
Some additional details on their assumptions:
- Core inflation forecast raised to 3% for 2025, up from 2.8% in March, with tariffs cited as a “good part” of the increase.
- GDP growth downgraded to 1.7% for 2025, a 0.4% reduction from December 2024’s forecast, reflecting tariff-related slowdowns.
- Unemployment projected to rise slightly from 4.2% to 4.4% by year-end, indicating a balanced but softening labor market.
The S&P 500
Stocks are back to the same spot as Q4 of last year and this place in the chart is acting as resistance. Not a shock that the rebound from the April low ended up losing momentum in this price area and odds are that some profit taking will take place at these price levels. There is also a new risk factor in the spotlight as oil prices have risen rapidly before the busy summer season. I doubt there are shortages of oil but it has implications for interest rates if inflation numbers tick higher over the summer months.
If we continue to drip lower next week then we may have a 5%+ drawdown on tap.
10-Year Interest Rates
Below is a chart of the 10Yr US Treasury bond yield and you can see that we have traded sideways for the last three years. If this were a stock, I would say that this is a consolidation period before the trend resumes to higher prices (yields). If this happens, we could see 5.5% on the 10Yr Treasury bond which could make for tough sledding in the equity markets. One catalyst could be a sustained high level of oil prices as we progress into the busiest season for the transportation sector.
The interplay between oil, stocks and interest rates could make for an interesting summer. For now, volatility is still subdued but if a catalyst emerges (like oil) we could see higher interest rates and lower stock prices.
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Paul J McCarthy III
President, Kisco Capital
