It’s your favorite Gorilla here. Let’s talk dots.
The dots, or Summary of Economic Projections (SEPs), are still hot out of the oven. While they still show 50bps of cuts baked in for the year, committee members removed 25bps from CY2026.
At first glance, it smells of stagflation:
📉 Real GDP, previously expected at 1.7%, came down to 1.4%.
📈 PCE inflation, previously expected at 2.7%, moved up to 3.0%.
📊 Unemployment is now expected to print 4.5% in 2025 and 2026, a touch worse than 4.4% and 4.3%, respectively.
Off the cuff, four thoughts:
1) The Fed doesn’t see inflation stemming from the labor market. The committee sees inflation upside attached to tariffs (and maybe fiscal spending). You can’t forecast an uptick in unemployment and simultaneously expect wage inflation to enter the mix.
2) The only value in the dot plot is for short-term trading. Market moves—across futures, bonds, and stocks—simply reflect a repricing based on what was priced in prior.
3) In their statement, the Fed said uncertainty had diminished. Personally, baffled. With all the uncertainty surrounding tariffs, fiscal policy, and the Middle East, I have no idea how you could say that… which is a nice segue to my final thought:
4) Respectfully, these projections—although helpful for all market participants—almost never come to fruition. Even in the most stable of conditions, this is not an easy exercise. What would pencil in? In my opinion, any “projection” made today in this backdrop is better classified as a “guess.” Take it with a grain of salt 🧂 .
Is This Hawkishly-Bullish?
In a way, yes.
Fewer cuts in the out year with just a small uptick in inflation. It kind of says “what recession?”
Personally, I think the economy would benefit from the 50bps of cuts the Fed currently projects. The labor market is a concern. Growth is a concern. Given that inflation is attributable to potential tariffs, moving interest rates shouldn’t influence their inflation outlook. What would the harm be? Especially now that we know the economy is far less sensitive to interest rates than in decades past. If anything, it might slow down upper-class spending as they see their free 4% on all their dry powder earn less. I don’t know. Just a theory.
Again, take it all with a grain of salt, but this could be the “excuse” or “permission” the market needs to melt up.
Gorilla With Glasses 