The Federal Reserve is expected to keep interest rates steady at its policy committee meeting ending March 19, but signal via Fed officials’ quarterly summary of economic projections that two rate cuts are likely later this year.
Although sentiment surveys and spending data indicate that Americans are feeling less confident about the future, recent data on the labor market and economic growth indicate conditions are stable. That gives the Fed flexibility to maintain a wait-and-see approach to any change in rates.
In a statement after the meeting, Fed Chair Jerome Powell is likely to continue urging patience with regard to rate cuts, given the economic uncertainty sparked by the Trump administration’s federal job cuts and tariffs. Interest-rate futures market pricing on Tuesday implied only a 1% likelihood of a change in the target rate on Wednesday. It is currently set at a range of 4.25% to 4.5%.
Policymakers could announce a pause in the Fed’s quantitative tightening regime, however, meaning the central bank will halt its balance-sheet runoff for now.
The Federal Open Market Committee is set to conclude a two-day meeting on Wednesday afternoon. A policy decision is due at 2 p.m. Eastern, followed by Powell’s press conference at 2:30 Eastern. FOMC members’ will also release an updated summary of economic projections, or “dot plot,” indicating their forecasts for GDP growth, inflation, unemployment, and the federal funds rate.
Fed Governor Christopher Waller recently noted that he was open to the possibility of two to three cuts this year, depending on economic conditions.
“The dot plot will include a few downward revisions, but not enough to change the median expectation of two cuts in 2025,” writes Guy LeBas, chief fixed income strategist at Janney Montgomery Scott. “Instead, what we’ll probably get is a wider dispersion but the same median number. That wider dispersion reflects a wider range of potential economic outcomes today than a few months ago.”
Powell was upbeat about the state of the U.S. economy in an appearance on March 7, indicating that the Fed doesn’t “need to be in a hurry” on rate cuts, and is well positioned to wait for “greater clarity” on inflation and other economic trends. Powell is expected to reiterate tomorrow that the Fed remains data dependent, although nimble, should conditions shift.
“The Fed would likely prefer to wait until they have policy clarity and a clear line of vision into the economic outlook, suggesting that policy easing will be delayed until late second quarter or even early third quarter,” writes Seema Shah, chief global strategist at Principal Asset Management.
Economists expect that economic projections on employment, inflation and real gross domestic product growth could tilt toward a more cautious outlook. Goldman Sachs economists expect Fed officials to downgrade their forecasts for 2025 GDP growth to 1.8%, while revising core inflation projections upward to 2.8% by year end.
The minutes of the January FOMC meeting mentioned an eventual pause to QT, and some economists think it could happen at this week’s meeting. “Regarding the potential for significant swings in reserves over coming months related to debt-ceiling dynamics, various participants noted that it may be appropriate to consider pausing or slowing balance sheet runoff until the resolution of this event,” the minutes stated.
Blake Gwinn, head of U.S. rates strategy at RBC Capital Markets, wrote recently that he sees the Fed pausing its quantitative tightening several months after the debt limit is raised and the U.S. Treasury general account is rebuilt.
“Waiting until May is also possible, but June is likely too late as the Treasury general account will already be very low,” Gwinn said. “But overall, there is no reason not to get the process underway in March.”
Gwinn said the Fed is likely looking at this decision as “mostly technical in nature,” rather than a response to economic deterioration.