Federal Reserve meets, lowers economic expectations

​At its March 2025 meeting, the Federal Reserve maintained the federal funds rate at 4.25% to 4.50%, acknowledging increased economic uncertainty. The Fed also announced a slowdown in its quantitative tightening program, reducing the monthly cap on Treasury securities runoff from $25 billion to $5 billion starting in April. Despite these adjustments, the Fed raised its inflation forecast to 2.7% for 2025, citing tariff policies as a contributing factor, and lowered its GDP growth projection to 1.7%.

• While the Federal Reserve was widely expected to keep rates steady, reducing the monthly cap on Treasury securities runoff was a positive surprise
• As the Fed previously embarked on raising interest rates, they additionally tightened financial conditions by allowing more of their balance sheet to run off as securities matured
• Simply put, this has the effect of tightening financial conditions because it takes liquidity out of the system
• By lowering the cap on this, they are marginally increasing the liquidity relative to their prior path
• We think this is why stocks initially rallied post-announcement
• Outside of this, Fed Chair Powell struck a soft tone on further rate cuts, maintaining their data-dependent stance
• The lowering of economic projections, however, while increasing inflation projections, was admitting that the situation is not as healthy as previously
• However, we do believe the Fed will react to any further weakness in economic data, with the benefit being that rates are high enough that they have a lot of room to cut
• While the Fed is still expecting two additional cuts by the end of the year, the market is now pricing in a 33% chance of three additional cuts, which would bring the rate down to 3.50%-3.75%

Consumer shows further signs of weakness

​U.S. retail sales edged up 0.2% in February 2025, rebounding from a revised 1.2% decline in January but falling short of the anticipated 0.6% increase. This modest growth reflects consumers' growing economic concerns, influenced by recent tariff implementations and stock market volatility. As noted last week, the University of Michigan's consumer sentiment index dropped to its lowest level since November 2022, signaling potential headwinds for future consumer spending.

• In addition to recent official economic data, we are also hearing anecdotal data from companies as it relates to the consumer
• This week, General Mills, the large food company, lowered their fiscal year outlook due to a 7% decline in North American retail sales
• The CEO of discount retailer Dollar General stated that many of their customers only have enough money for basic essentials, noting that they are even sacrificing those
• Walmart’s CEO stated that they are experiencing consumers running out of money before the end of the month and buying smaller package sizes at month-end
• Recently, Delta, American, and Southwest Airlines all lowered their growth projections for the year, citing softening in travel demand
• On the higher end, Williams Sonoma guided to lower growth prospects for 2025 of -1.5% to +1.5%

Gold price tops $3000 an ounce for the first time

Gold surged past $3,000 per ounce this week, driven in part by continued strong demand from global central banks. According to the World Gold Council, central banks have been net buyers of gold for 17 consecutive months, with China, Turkey, and India leading recent purchases. This institutional demand, alongside geopolitical uncertainty and a weakening dollar, has fueled bullish sentiment in the gold market. Analysts now expect gold to remain well-supported, even amid potential short-term volatility.

• As the stock market fell for the fifth consecutive week, the price of gold hit all-time highs
• As noted over the prior year, Central Banks globally have had an insatiable demand for the precious metal
• This is due to a combination of factors, including the intent of many to try and move away from the US Dollar as the global reserve currency and the uncertainty of Trump’s geopolitical policy
• Notably, there has been a staggering demand for the physical delivery of gold, with the UK Central Bank having to delay the settlement of physical gold from the typical 2-3 days to 4-6 weeks
• We believe gold will continue to be an in-demand asset in the current environment

‍