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Analysis by Aristotle Pacific Capital and Jeff Klingelhofer, CFA a managing director and portfolio manager for Aristotle Pacific Capital

Federal Reserve Chair Jerome Powell and the FOMC largely stuck to the script at this month's FOMC meeting, acknowledging strong underlying economic growth, continued solid employment, and a sticky inflation picture. Below are what we believe to be the most important takeaways along with our analysis.

• The conversation has shifted from “two cuts or more this year” to “two cuts or less” with no change in the official policy rate. The central tendency for future policy rates moved higher, and barring a further slowdown in economic growth, there is material likelihood that the Fed moves to one cut at its next policy meeting in May.
• There were two words of the day: “uncertainty” and “patience.” The Fed has signaled it’s in a wait-and-see mode, and unless we see material weakening from here, we are unlikely to see Fed cuts this year.
• While uncertainty around growth is elevated, don’t confuse uncertainty for concern. The Fed was quick to reassure the public that current growth remains strong and employment remains solid. Our read is that the Fed believes the left tail risk to growth is increasing more rapidly than the right tail risk to inflation. However, until we observe true economic weakness, we believe inflation concerns will keep the Fed patient. This is the main reason the Fed raised, not lowered, its central tendency around future policy rates.
• The “T” word re-enters the mix. Chair Powell characterized heightened inflation from tariffs as likely being “transitory”(an interesting word choice given past mistakes from the Fed surrounding this word). There is material risk that current inflation results in a continuation of demands for higher wages and sticky services inflation.
• The shift in slowing quantitative tightening is merely technical in nature. In other words, don’t confuse a slowing in QT as pseudo QE.

For Institutional Investor use only. This information is presented for informational purposes only. Past performance is not indicative of future results. The opinions expressed herein are based on current market conditions and are subject to change without notice.