TLDR
- Fed expected to maintain interest rates at 4.25-4.5% range during March 19 meeting
- Officials likely to signal two rate cuts later in 2025 via the “dot plot” forecast
- Trump’s tariffs and job cuts creating economic uncertainty that may delay rate cuts until Q2/Q3
- Fed may announce pause in quantitative tightening (QT) during this meeting
- Economists project higher inflation (2.8%) and lower GDP growth (1.8%) forecasts for 2025
The Federal Reserve is widely expected to keep interest rates unchanged at its policy meeting ending March 19, while maintaining projections for two interest rate cuts later this year. Market watchers will closely monitor both the Fed’s quarterly economic forecasts and Chair Jerome Powell’s press conference for clues about future monetary policy amid the economic uncertainty created by President Trump’s policies.
The central bank is approaching this decision with caution. Interest rates currently sit in a range of 4.25% to 4.5%. According to interest-rate futures market pricing, there was only a 1% chance of any rate change at this meeting.
The Federal Open Market Committee (FOMC) will conclude its two-day meeting Wednesday afternoon. Their policy announcement is scheduled for 2 p.m. Eastern, followed by Powell’s press conference at 2:30 p.m. Eastern.
The Fed’s quarterly Summary of Economic Projections (SEP), known as the “dot plot,” will be watched closely by investors. It displays each Fed official’s prediction about future interest rate movements.
Economists expect the Fed to adjust its economic forecasts. Goldman Sachs projects the Fed will raise its 2025 inflation outlook to 2.8% from 2.5% while lowering its economic growth projection to 1.8% from 2.1%.
These changes reflect the impact of Trump’s policies. The administration’s federal job cuts and tariff implementation are creating new variables in the economic landscape that the Fed must consider.
Fed Governor Christopher Waller recently noted he was open to two or three cuts this year. This would depend on how economic conditions unfold throughout 2025.
Guy LeBas, chief fixed income strategist at Janney Montgomery Scott, suggests the dot plot will show “a wider dispersion but the same median number” of projected rate cuts. This indicates a broader range of potential economic outcomes than a few months ago.
Powell has expressed patience regarding rate cuts
During a March 7 appearance, he stated the Fed doesn’t “need to be in a hurry” and is waiting for “greater clarity” on inflation and other economic trends.
Many experts believe the Fed will delay policy easing until late in the second quarter or early third quarter. Seema Shah, chief global strategist at Principal Asset Management, notes the Fed “would likely prefer to wait until they have policy clarity and a clear line of vision into the economic outlook.”
Investor concerns are growing about the possibility of stagflation. This economic condition combines stalled growth, persistent inflation, and rising unemployment.
A recent global survey by Bank of America found 71% of surveyed investors expect stagflation. This represents the highest level since November 2023.
Consumer sentiment also declined in March. Price increases remain a top worry for many Americans trying to manage their household budgets.
Some economists see recession risks rising. Wil Stith, bond portfolio manager for Wilmington Trust, points to the uncertainty clouding business investment and hiring decisions.
The Fed may also announce a pause in its quantitative tightening regime. This would mean halting the central bank’s balance sheet runoff for now.
The January FOMC meeting minutes mentioned this possibility. Some economists believe this announcement could come at the March meeting rather than waiting until May or June.
Blake Gwinn of RBC Capital Markets views this decision as “mostly technical in nature” rather than a response to economic problems. The timing relates to Treasury general account dynamics following debt ceiling changes.
Luke Tilley, chief economist for Wilmington Trust, has a different outlook. He expects the Fed to maintain its two-rate cut prediction but actually implement four cuts this year starting in May.
Tilley believes tariffs will slow economic growth more than they will boost inflation.
“We’re in more of a growth scare over the course of the year than we are an inflation scare,” he said.
The bond market seems to share this concern. Treasury yields have moved lower this month as investors question the economy’s strength in the face of new policy uncertainties.
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