Stubborn Inflation Concerns Fed
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Welcome to the Schwab Market Update podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead. I'm Keith Lansford, and here is Schwab's early look at the markets for Thursday, March 20th. The Federal Open Market Committee held its key interest rate even as expected. The key change to the FOMC's statement was that the level of uncertainty has increased.

The updated summary of economic projections had a bit of a stagflationary feel as growth projections declined, but the inflation projection was revised higher, according to Colin Martin, CFA Director of Fixed Income Strategy at the Schwab Center for Financial Research. The Fed's dot plot points to two rate cuts this year, but the underlying details were a bit more hawkish.

Eight of the 19 participants projected zero to one cut this year, suggesting that we may get fewer rate cuts than expected if inflation remains elevated. The Fed has slowed its balance sheet runoff by lowering its monthly cap for maturing Treasuries to $5 billion from $25 billion. The $35 billion cap for mortgage-backed securities remains.

Chances for a May rate cut rose slightly to 20% near the end of Wednesday's close, according to the CME FedWatch tool. Chances for at least a 25 basis point cut by June remain near 65.2%.

With the Fed announcement behind us, attention can be redirected to some important economic reports due out this morning. First, the Philadelphia Fed Manufacturing Index saw a big spike in January with a print of 44.3, but trailed off in February at 18.1. The consensus estimate for March is lower at 8.5, which is still considered expansionary.

Next, the job market continues to be an area of focus, which means weekly initial jobless claims will draw interest. The job market has shown some resilience, as the last two reports have come in below analysts' estimates. Today's consensus forecast is 224,000. Finally, existing home sales will provide important consumer insights. In January, month over month, existing home sales fell 4.9%.

Existing home sales were $4.24 million in December and $4.08 million in January. The February consensus estimate is $3.95 million. Last week, the Dow Jones Transportation Average broke below its June 2024 support level around 14,780. This week, the transports have tested that old support as new resistance. So far, the level appears to be holding.

If the downtrend continues, many technicians might target the October 2023 low around $13,500 as the next major support level.

The S&P 500 index rose 60.63 points Tuesday, or 1.08%, to 5,675.29. The Dow Jones Industrial Average increased 383.32 points, or 0.92%, to 41,964.63. And the Nasdaq Composite climbed 246.67 points, or 1.41%, to 17,750.79.

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