Stocks closed lower yesterday, erasing intraday gains after the FOMC Announcement.

The Fed left rates unchanged, as expected.

And new Fed Chairman Kevin Warsh said that "economic activity is expanding at a solid pace," and that "productivity growth and capital investment are both strong."

But he also recognized that inflation continues to run ahead of the Fed's target rate.

And talk by the committee of a possible rate increase (one 25 basis point hike) in 2026 dragged stocks lower.

I should note that nobody is expecting that to undo the 3 rate cuts we saw in 2025. Moreover, the forecast is for cuts to resume in 2027.

Here's what the Summary of Economic Projections (SEP) is forecasting:

GDP for 2026 was slightly reduced to a median of 2.2% (from March's 2.4% estimate). 2027 was unchanged at 2.3%. And 2028 was increased to 2.2% (up from March's 2.1% estimate).

The unemployment rate for 2026 was reduced to 4.3% (from March's 4.4%). 2027 was unchanged at 4.3%. And 2028 was unchanged at 4.2%.

Total PCE inflation for 2026 was put at 3.6% (up from March's 2.7% forecast). 2027 ticked up to 2.3% (from 2.2%). 2028 was unchanged at 2.0%. (The core rate (ex-food & energy) was at 3.3% vs. 2.7%; 2.5% vs. 2.2%; and 2.1% vs. 2.0% respectively.)

And the estimate for the Fed Funds rate for 2026 was raised to 3.8% (from March's 3.4%). (The current rate is at 3.50-3.75%, for a midpoint of 3.63%.) 2027 is put at 3.6% (from March's 3.1%). And 2028 is forecast at 3.4% (from March's 3.1%).

So the SEP is forecasting a possible quarter-point rate hike by year's end, but then a quarter-point rate cut in 2027, and another quarter-point cut in 2028.

(BTW, Mr. Warsh made it a point to say he did not contribute to the SEP forecast.)

I should also point out that the FOMC Statement was also shortened. From approximately 300 words to less than 150 words. Mr. Warsh said the statements will just give you "the facts, as best we can judge it," and essentially remove any forward guidance.

At the moment, the guidance is still coming from the SEP. But that's quarterly. And the SEP is expected to undergo some changes in the future.

Nonetheless, there was nothing overly surprising in yesterday's announcement. We already knew that some members were thinking about raising rates if inflation persisted. We learned that from last month's FOMC Minutes.

I should also note that with the war in Iran coming to an end, and with oil in retreat, the higher inflation forecasts, and higher Fed Funds rates could see meaningful changes by the next time the SEP comes out.

In other news, yesterday's MBA Mortgage Applications showed the Composite Index off -3.8% w/w, with Purchases down -3.4%, and Refi's down -4.5%.

Pending Home Sales were up 3.8% vs. last month's 0.3%. and outlook for 0.9%. The Index came in at 76.8 vs. last month's 74.0.

And Retail Sales rose 0.9% m/m vs. last month's 0.4% and views for 0.5%. Ex-Vehicles it was up 0.8% vs. last month's 0.7% and estimates for 0.5%. Ex-Vehicles & Gas it was up 0.5% vs. last month's 0.5% and consensus for 0.4%.

Today we'll get Weekly Jobless Claims, Leading Indicators, and the Philadelphia Fed Manufacturing Index.

FYI ? the markets will be closed on Friday, 6/19, for Juneteenth.

So today is the last trading day before a 3-day long weekend.

Best,