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We view today’s release as an announcement from the Fed, but markets seem to be interpreting it differently. Treasury yields have shifted lower in a bull steepener. Equity markets are notably higher post-2pm, but off intraday peaks, while IG and HY credit spreads appear to be broadly tighter on the day.

The Fed held the policy rate steady at 4.25-4.50% as widely expected. It announced a slowing of the pace of QT to $5 billion per month in Treasuries from $25 billion per month previously. The agency MBS runoff cap remained at $35 billion.

Changes to the SEP indicate an increase in stagflation risks as the Fed adjusted growth forecasts downwards and inflation forecasts upwards. It now suggests 1.7% GDP growth this year (down from 2.1%), aligning more closely with our projections. Headline and Core PCE deflator projections for 2025 were revised up 0.2pp and 0.3pp to 2.7% and 2.8%, respectively.

The dot plot was unchanged across the entire forecast period, with two cuts indicated for 2025 and 2026. During his press conference, Chairman Powell noted that the decrease in growth expectations was offset by the increase in inflation expectations regarding the impact on the projected appropriate policy path.