To The Moon

We saw how the bulls was getting a small bounce in the early afternoon after the FOMC meeting when Fed Chair Powell used the infamous T-word the “transitory” word which he has not used in a few years since 2021.

The last time the word was used is when Transitory inflation is a term that was widely used in 2021 by Federal Reserve and Biden administration officials to describe higher-than-normal prices.

But this time Fed Chair used it when mentioning that the impact of potential tariffs and economic uncertainty as a result of those tariffs may just be transitory.

In this article, I would like to look at how rotation have moved, also a recap of what exactly was said during the FOMC meeting, what was Fed Chair Powell trying to say to us, and most importantly, want to understand why traders were reacting pretty bullish all across the board after the FOMC took place.

Good Rotation Making Some Tech Stocks Attractive Buys

If we looked at the overall market, there was some good rotation on Wednesday (19 March), but we need to understand that a few days bounce might not signal that the bulls are back and the uncertainty has been removed.

We will need to look at the message from Fed and how big tech stocks have been moving and I can say that I am seeing some big techs still at very attractive buying opportunities.

Here are some stocks I will be watching closely. $Tesla Motors(TSLA)$ $NVIDIA(NVDA)$ $Amazon.com(AMZN)$

S&P 500 and Sector Performance

Since we have seen a bounce so we shall look at $SPDR S&P 500 ETF Trust(SPY)$ which was up 1.1% and the $Invesco QQQ(QQQ)$ was also up 1.34%, and across S&P 500 we saw some decent rotation though the market started the morning session on a pretty bumpy path but we begin to see the stocks coming up into the Fed meeting.

After the Fed meeting was very well received, we saw the market closed in a positive note.

Looking at the heat map, we can see that the bullish sentiment was well received across the three indexes and this happen across all different industries.

The big tech names are finally coming back from the recent dip, financial and banking names are making good responses to the Fed comment and news. Though we saw that healthcare sector closed in a bit mixed, heavy weighted consumer defense stocks like Walmart, Costco, Proctor and Gamble also help to lift the NASDAQ index.

Stocks which are sensitive to interest rate also managed to react positively to Wednesday’s Fed news and comments.

Looking at the sector on 1-day performance, we can see that all 11 S&P 500 sector was up in the green, with consumer cyclical, energy and technology closed above 1.4%

On the weekly performance, the performance is relatively good, with energy, financial and basic materials leading the sectors. Communication services which was down by 0.82% was dragged by names like $Alphabet(GOOGL)$ and Meta. But overall we are still seeing them holding onto their gains respectively on Wednesday (19 March).

Even though we have a few days of bounce, but looking at the monthly performance, the damage seem to persists because S&P 500 still navigate in and out of the correction zone.

If we looked at the QQQ, it is still 10% down from its highs, the biggest laggers are consumer cyclicals and technology over this past one month of trading.

Federal Reserve Powell FOMC Speech Recap

If you have listened to Fed Chair Powell comment, he says that the tariffs could delay the progress in lowering inflation. But investors are wondering then why were the markets bullish if that was the case.

For this we need to understand that once every quarter Fed would have their projections which covers the status of the GDP the unemployment rate and the PCE inflation rate overall. This will be present as a summary of economic projections.

With the report, Fed would be able to give their stance on how they would like the interest rates direction to move. So market already expecting no change from Fed in terms of the policy rate as the policy rate remain flat which is around 4-5%.

If we looked at the USD Interest Rate Projections, we can see some declined that in the first and second year expectations which the previous forecast for longer duration rate cuts were at 3.9 for the first year, this would mean that 2025 it will be 3.4.

Then going into second year which is 2026, we saw that it is revised down to 3.1. So we are seeing some declines here and even if on longer duration rate, the rate have maintained the same. This would show that Fed can have some space to project into the future.

When the economy is not doing too badly though inflation appear bumpy, but we are seeing that it is on its way down to 2%, so this could mean to Fed that they can actually ease off in late 2025 or early 2026 to start cutting rates.

This is how I have deduce what Fed might be thinking.

Target Rate Probabilities For 10 Dec 2025 Fed Meeting

Now if we were to see how traders are responding largely to what Fed said during Wednesday FOMC, we can see that Fed projections by the wall street, currently stands at about two rate cuts by end of 2025, though there are some analysts looking for three.

But whether if it is two or three, which appear to be a slight uptick from Tuesday before the FOMC, there are a lot of people already looking at two rate cuts, but the percentage of the two rate cuts have moved slightly.

Summary Of Economic Projections

As mentioned in previous section, let us take a look at the summary of economic projections, this will be major changes that were from December all the way to March.

The changes in real GDP actually came down from 2.1 in December projection to 1.7, looking at the 2026, it was also revised down from 2 to 1.8. So we can expect that Fed does see the economy slowing down but not for the same reason as we can see that Fed are maintaining their policy rate high which does put pressure on the economy.

So keeping interest rates on the high side usually is seen as a critics to outsized economic growth, this is especially so when Federal Reserve continues to try and stem the progress of inflation to the upside.

Unemployment rate was largely left unchanged, there is only a slight increase from 4.3 to 4.4 but this figure is still near the historical lows for the average unemployment rate. Looking at 2026, it was left unchanged. On the PCE inflation part, we are seeing December projections raised already from about 2.2 to 2.5, yet saw another increase to 2.7, then for 2026 we also saw an increase from 2.1 to 2.2.

Long-Term Firm Rate Inline With Goldman Sachs Projections

Now I think we need to take note of the T-word that Fed Chair Powell used, the transitory word would mean that we might see an uptick in inflation this year. This is a potential projection due to the initial policies surrounding the tariffs, and also Fed’s long-term rate remains firm.

If we looked at the Goldman Sachs projections from their investment research, this is inline with the chart below, the chart is plotted to show what are the baseline expectations for inflation, how high can it go, how long will it stay as a result of the tariffs.

So from the chart, we can see that it actually have different scenarios in it, for example, Mexico, Canada, Universal and China which is at 60%, I would say this is pretty huge. EU is at +25% same for Global Auto.

So if you noticed, from where we are at now, we could see that an early uptick in inflation into near end of second quarter, which could likely be the peak. From there, we could see the entire different risk adjusted scenarios begin to come down as we moved into 2024 and onwards, then the impacts of those tariffs might be largely insignificant as it would already be integrated into the economy or potentially removed as part of the success of the negotiation tactics.

So this might be the stance that Federal Reserve is trying to take and make us understand by giving the projections showing some uptick which could be into the second quarter then towards end of 2025. This might be the case as tariffs normally would take about 3 to 6 months to show its integration into the economy then begin causing significant disruption in prices.

Now we saw the core PCE was revised from 2.5 up to 2.8 for 2025 but the revision is the same for 2026, this might be why Fed Chair bring back the infamous word transitory when talking about inflation and the possible impacts of tariffs on inflation.

FOMC Participants’ Assessments Of Appropriate Monetary Policy

There is one thing that I did saw when I look at the dot plot, which have every dots representing different Fed member, the plot is the target ranges which each and every voting members would write down every quarter to determine where they would think the target rates would be going.

For this meeting that is for December, we will notice that there is a lot of outliers, the key people either below or mostly below were few. This shows that there was a lot of discrepancy between members which would often be referred to as dissent among the Fed members.

But this time it seems like it is a lot tighter and more streamlined so we do not have the issue of dissent. This is important because wall street like to see that Feb members are all closely inline with the same path they are going to take, which does see rates progressively moving to the downside.

Do note that there is still no one calling for extra fast-paced reductions as that could cause a situation of panic. Compared the dot plot now, it does look a lot healthier than the one in December which did show a divided Federal Reserve with some members being slightly more concerned about the direction of the economy.

The fact that the dot plot is a lot tighter is what have contributed to the rally in Wednesday’s afternoon session and after hours, and after the comments from Fed Chair Powell.

Fed Reduced Speed Of Quantitative Tightening -> Good News

Beginning in April the FOMC committee will slow the pace of decline of its security holdings by reducing the monthly redemption cap on Treasury securities from 25 billion to only 5 billion.

This is a huge reduction which mean that the committee does not want to put too much pressure on the markets as they know that market is experiencing fear with lot of volatility in the markets. Hence they choose to reduce the speed of its quantitative tightening from 25 billion to 5 billion.

I would think this is the best piece of news that have come up from the meeting. We have been hearing forecast of the recession projections moving up but still not high, I would like to look at the recession probability indicator which we saw that it was raised from 15% probability of recession in the next year to only 20%. This is what Fed Chair Powell is talking about regarding the recession odds, which have gone up but still not as high on an absolute basis.

Summary

Looking at how Fed Chair use the T-word, transitory, the message might be to us that while we are seeing inflation creeping up, but the level is still not as high to warrant a rate cut now, this is why markets react positively to the comment.

So as investors, I think our strategy might need to consider the timeframe of when likely the Quantitative Tightening would end and are we going to see a QE forming soon. I think we might want to continue to monitor future FOMC and dissect what message Fed Chair is giving us.

Appreciate if you could share your thoughts in the comment section whether you think QE would be coming after the QT ended by third quarter 2025.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.