Stocks closed mostly higher on Friday, with all of the major indexes finishing higher for the week.

Last week's FOMC Announcement, in spite of no rate cut, appeared to calm investors and paint a picture of slower, but strong enough growth to refute recession concerns and paint a picture of a growing economy.

The Fed put their full-year 2025 GDP forecast at 1.7%, down from their previous forecast of 2.1% from December. And they pegged 2026 at 1.8%.

This came as a relief given the recent GDPNow forecast for Q1'25 GDP of -1.8%, down sharply from a couple of weeks ago when they were projecting 2.3%. (GDPNow will next update their estimate on Wednesday, March 26.)

Moreover, Fed Chair Jerome Powell in his press conference said that historically, at any given time, there is a 1-in-4 probability of a recession in the next 12 months. But he followed up by saying, "a number of forecasters have generally raised...the possibility of a recession somewhat," "so it has moved up, but it's not high."

The Fed is still waiting on more clarity from the Trump Administration on tariffs and fiscal policy, but felt the economy was still in a good place, giving the Fed the ability to go slow and wait and see.

As it stands now, the latest Personal Consumption Expenditures (PCE) index (the Fed's preferred inflation gauge) showed the core rate (ex-food & energy) at 2.6% y/y, down from the previous pace of 2.8%. The Fed's full-year outlook was upped a bit to 2.7% for 2025, from December's estimate of 2.5%. But they expect 2.2% in 2026. And finally hitting the Fed's 2.0% target in 2027.

Nonetheless, they are still expecting 2 rate cuts this year (presumably by 25 basis points each), which would put the Fed Funds rate at a midpoint of 3.9%. Additionally, they are expecting another 2 rate cuts next year, putting the Fed Funds rate at 3.4%. And finally in 2027, they foresee a singular rate cut, putting the Fed Funds rate at 3.1%, with longer run projections at 3.0%.

We'll get more information on the Administration's tariff's come April 2 (next week). That was when U.S. imposed retaliatory tariffs were set to go on other partners who levy them on us. But I'm reminded of what U.S. Treasury Secretary Scott Bessent said last week: "I am optimistic that on April 2, some of the tariffs may not go on because a deal is pre-negotiated, or once countries receive their reciprocal tariff number, right after that, they will come to us and want to negotiate it down."

Interestingly, it was reported that the EU will delay imposing their first round of retaliatory tariffs against the U.S. until mid-April, rather than April 2. No doubt, waiting to see what the U.S. does, given their previous delays, and the negotiations taking place.

Next week we'll also get the latest Employment Situation report by the Bureau of Labor Statistics on Friday, April 4.

A solid report would further underscore the Fed's narrative of a strong economy and labor market, while a weak one would undercut it.

Last month's (February) unemployment rate came in at 4.1%. At the moment, the Fed see the unemployment rate rising slightly to 4.4% in 2025, up from December's 2025 estimate of 4.3%. Looking further out, they see it at 4.3% in 2026, and 4.3% in 2027.

We'll see if the market can build on last week's gains this week.

See you tomorrow,