Stock Market Update Thursday, March 20, 2025

Stock Market Update Thursday March 20, 2025 U.S. equities closed modestly lower in a volatile session, with the S&P 500 slipping 0.2%, the Nasdaq-100 (QQQ) down 0.3%, and the Russell 2000 (IWM) falling 0.6%.

Away From Stocks: The bond market took center stage, with short-dated Treasurys rallying, driving the 2-year yield down to 3.95% from 4.04% on Tuesday, reflecting increased demand for safer assets. WTI crude oil advanced past $68 per barrel, signaling resilience in energy markets. Gold edged higher to $3,045 per ounce, maintaining its safe-haven appeal, while Bitcoin retreated to $84,000, consolidating after recent gains. Meanwhile the VIX holding just below 20.

FOMC Meeting – March 19, 2025: Key Takeaways Economic Uncertainty

The Federal Reserve’s economic outlook has turned increasingly cautious, with 90% of FOMC members now expressing elevated uncertainty about GDP growth, a sharp increase from 50% in December. Moreover, 90% of participants view downside risks as dominant, compared to just 25% previously, reinforcing a dovish bias in policy considerations.

Tariff Impact & Transitory Inflation Pressures

Federal Reserve Chair Jerome Powell said that even though prices are changing a lot in the short term, people still expect inflation to stay under control in the long term. He pointed out that some surveys, like the University of Michigan Index, show a recent rise in inflation expectations. However, he stressed that most indicators suggest inflation will remain stable over the next few years. This suggests the Fed might not overreact to temporary price increases.

When asked about tariffs and their impact on inflation, Jerome Powell said the Fed usually ignores temporary supply chain problems. Jerome Powell believes that inflation caused by tariffs is likely to be short-lived. This view contradicts recent analyses by Fed staff, who believe that tariffs could cause inflation for several years.

Financial Conditions & Market Implications

Jerome Powell acknowledged that financial conditions remain a key transmission channel for monetary policy, underscoring the Fed’s heightened focus on market volatility and risk sentiment. The divergence between hard economic data, which continues to show resilience, and soft data, including surveys and sentiment indicators, which have weakened, suggests the Fed is weighing mixed economic signals carefully.

Policy Outlook & Rate Path

While the Federal Reserve's official economic forecast still projects two interest rate cuts in 2025, some policymakers are starting to disagree. Three additional voting members of the Federal Open Market Committee (FOMC) who initially anticipated rate cuts now believe they won't happen. This shows a growing division within the Fed regarding the appropriate strategy. Despite this internal disagreement, investors interpreted the Fed's recent meeting as a sign of a deliberate and data-dependent approach. This reinforced the expectation that the Fed will carefully monitor economic data and prioritize avoiding unnecessary risks. Therefore, interest rate cuts remain a possibility if the economy experiences a substantial downturn.

Are Trade Tensions Easing?