Episode summary
Instant Reaction: The Fed Decides | Bloomberg Surveillance
Bloomberg Surveillance
· · Hosts: Tom Keene, Paul Sweeney, Lisa Mateo, Michael Barr, Jonathan Ferro
Summary
The Fed held rates unchanged, kept its median dot pointing to one cut in 2026, and signaled no immediate change in the policy path even as it lifted its inflation forecasts and slightly raised its growth outlook. The host and guests framed the decision as a surprisingly dovish hold: only one dissenter, Governor Myron, wanted a cut, while the committee still expects inflation to ease by 2027 and the longer-run funds rate to sit around 3.1%. The market reaction was muted, with equities and Treasuries barely moving, reinforcing the panel’s view that the Fed is not the main driver right now.
The discussion centered on how the Fed is responding to the Middle East shock, especially oil and energy prices, and whether it is effectively looking through temporary inflation pressure. Several guests argued the projections imply a tolerance for higher inflation in the near term, while still assuming labor-market weakness will eventually justify cuts. Others worried the numbers did not add up and pointed to a possible stagflationary setup, with higher prices, weaker real incomes, and growth that could slow if the energy shock persists.
The final thread was the Fed’s institutional future. Guests said Chairman Powell is likely to remain in place for at least a few more months, and that the upcoming handoff could be unusually messy. But the immediate focus remained the same: the Fed sees uncertainty, the market sees a geopolitical shock, and both are waiting to see whether the labor market or inflation breaks first.
Key takeaways
- The Fed left rates unchanged and kept the median dot at one cut in 2026, which the panel described as a dovish hold.
- The committee raised its 2026 PCE inflation forecast to 2.7% from 2.4% and lifted GDP growth to 2.4% this year and 2.3% next year.
- Guests said the market reaction showed the Fed is not the main driver right now because oil and geopolitics dominate price action.
- Several guests warned the projections risk a stagflationary outcome if higher energy prices persist and squeeze real incomes.
- The host and guests said Chairman Powell is likely to stay on for at least a few more months as the next-chair transition remains unsettled.
Notable quotes
“No change in rates, no change in dots, one descent, but some big changes in inflation expectations”
“This is an incredibly dovish hold just by virtue of the fact that only one person desented and it was Governor Myron”
“The Fed is still basically forecasting the same inflation glide path as they were before”
“The Fed is playing dodgeball without the ball”
“I think the emphasis is going to be on uncertainty and wait and see”
How the episode opens
Bloomberg Audio Studios, podcasts, radio, news. This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3,000 journalists and analysts around the world.
With that Fed decision, here's my McKe. No change in rates, no change in dots, one descent, but some big changes in inflation expectations. Fed officials see one cut still in 2006 at some point, even though their statement notes that uncertainty about the economic outlook remains elevated.
Three members who favored no cuts in this year moved their dots down to one. The statement goes on to say the implication of developments in the Middle East for the US economy are uncertain and the committee remains attentive to risks to both sides of their mandate. They still see one more cut in 2027.
Steven Myron, the only denter he wanted a quarter point cut this time and from the dots we discern that he still wants 100 basis points at some point this year. The language about future moves remains the same. They still talk about the extent and timing of additional adjustments to the target range.
It's the summary of economic projections in which we see a lot of changes. PCE inflation this year is forecast at 2.7% up from 2.4% in December. Core is also seen at 2.7% up from 2.5.
Both dropped to 2.2% next year up from 2.4% in the December SP. core is seen at 2.7% uh this year. Uh both drop back as I mentioned next year uh to 2% in 20128.
GDP marked up a tenth in both years both of the next two years to 2.4% this year and 2.3% next year. The unemployment forecast remains 4.4% in 2026 dropping to 4.3% next year. That's up from 4.2% in December.
And the longer run estimate for Fed funds seen as the proxy for the neutral rate rises a tick to 3.1%.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fed policy decision
- interest rates
- economy outlook
- financial markets
- investment outlook
Companies and tickers mentioned
- Bloomberg
Watch the episode
Watch “Instant Reaction: The Fed Decides | Bloomberg Surveillance” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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