Stocks closed mostly higher yesterday, after the Fed lowered rates by a quarter percent, as expected.

The Fed Funds rate is now at a range of 3.50% to 3.75% (midpoint of 3.63%).

The Fed also updated their Summary of Economic Projections (SEP).

They increased their 2025 GDP forecast to 1.7% from 1.6% back in September. For 2026 it rose to 2.3% from 1.8%. For 2027 it was upped to 2.0% from 1.9%. And 2028 was increased to 1.9% from 1.8%.

Their unemployment rate estimate for 2025 was steady at 4.5% vs. September's outlook. For 2026 it was steady at 4.4%. 2027 was reduced to 4.2% from 4.3%. And 2028 was steady at 4.2%.

PCE core Inflation forecasts for 2025 were lowered to 3.0% vs. 3.1% from September. 2026 is pegged at 2.5% from 2.6%. 2027 was steady at 2.7%. And 2028 was steady as well at 2.0%.

And the Fed Funds rate projections were unchanged from September at 3.6% for 2025, 3.4% for 2026, 3.1% for 2027, and 3.1% for 2028. Their longer run rate was also steady at 3.0%.

In short, the dot plot is forecasting one 25 basis point rate cut in 2026 (unchanged from earlier estimates), and one cut in 2027, also in line with previous forecasts.

In Fed Chair Jerome Powell's Press Conference, he noted that he sees a "pickup in growth," that "consumer spending has held up," and that "AI spending on data centers has been holding up business investment." He summed up his comments by saying the baseline is for "solid growth next year."

On inflation, he noted that "services inflation [is] coming down," and "goods inflation is entirely in sectors where there are tariffs." He noted that the Fed has had success in bringing down inflation in non-tariff sectors.

It should also be noted that tariffs are typically a one-time adjustment to prices rather than an ongoing increase over time. Mr. Powell said that a "reasonable base case is that the effects of tariffs on inflation will be relatively short lived, effectively a one-time shift in the price level."

That being said, it underscores their outlook that inflation is expected to gradually come down.

The Fed also said they would not only end their Treasury runoff, they said they will begin buying back $40 billion in Treasuries starting on Friday, and "remain elevated for a few months," and then will likely be reduced. The decision to buy back Treasuries increases liquidity, but appears more of a timing thing due to wanting ample reserves with taxes coming up next quarter, than anything else.

The market clearly liked what it heard, and the markets responded accordingly. The small-cap Russell 2000 actually made a new all-time high following the announcement.

In other news, yesterday's MBA Mortgage Applications showed the Composite Index up 4.8% w/w with Purchases off -2.4%, and Refi's up 14.3%.

Today we'll get Weekly Jobless Claims, and the Quarterly Services report.

YTD, the Dow is up 13.0%; the S&P is up 17.1%; the Nasdaq is up 22.5%; and the Russell 2000 is up 14.8%.

I'm still expecting the S&P to close up by 20% or more for the third year in a row. They only need another 2.9% more to do it.

There's 13½ more trading days left in the year. Given that Q4 is the best quarter for stocks, and with December having a 77.8% likelihood of being up, I think the odds are looking good they can do it.

See you tomorrow,