Fed's March Meeting Expected To Signal No Hurry On Rate Cuts As Powell 'Likely To Tread Carefully'

The Federal Reserve is set to hold interest rates steady on Wednesday, reinforcing its “not-in-a-hurry” stance on rate cuts while possibly raising inflation forecasts to account for the economic impact of new trade tariffs.

The decision will mark the second consecutive meeting at which rates remain unchanged. Policymakers await further progress in taming inflation before considering reductions.

The Federal Open Market Committee (FOMC) will also release updated economic projections, including forecasts for growth, inflation, employment, and the interest rate path—commonly referred to as the “dot plot.”

In its December 2024 projections, the Fed indicated expectations for just two 25-basis-point rate cuts in 2025, a more hawkish stance than current market pricing.

Is Market Pricing Too Optimistic?

Fed funds futures currently imply three rate cuts by December 2024, with a 42% probability of four cuts, according to the CME Group’s FedWatch Tool.

This divergence between market expectations and the Fed's last official projections adds weight to Wednesday's updated forecasts.

In December, the Fed had already raised its inflation expectations for 2025, forecasting headline Personal Consumption Expenditures (PCE) inflation at 2.5%, up from 2.1% in September. Core PCE inflation, which excludes volatile food and energy prices, was projected to reach 2.5% in 2025, compared to 2.2% previously.

Analyst Views: Tariffs Could Push Inflation Higher

David Mericle, U.S. economist at Goldman Sachs, highlighted that FOMC participants may need to reconsider their inflation projections.

“FOMC participants will have to rethink their projections now that the first tariffs have taken effect and the White House looks set to eventually impose larger tariffs than initially seemed likely,” Mericle said.

He expects the median 2025 core PCE inflation projection to rise by 0.3 percentage points to 2.8% and GDP growth to be revised down by 0.3 percentage points to 1.8%, largely due to tariffs. While his own forecasts are more drastic—showing a 0.5 percentage point change in both metrics—he believes the Fed will adjust more cautiously.

“We suspect that the Fed leadership would nevertheless prefer for the median 2025 dot to continue to show two cuts this year to avoid adding to recent market turbulence.”

Recession Fears And Powell's Messaging

David Morrison, senior market analyst at Trade Nation, indicated that investors will be closely watching the Fed's comments regarding recession risks, particularly after U.S. Treasury Secretary Scott Bessent declined to rule out a downturn in a recent television interview.

“Investors will also be hoping for some calming words over the likelihood of a recession in the U.S. this year,” Morrison said.

Sumit Roy, an analyst at ETF.com, suggested that Federal Reserve Chair Jerome Powell will likely exercise caution during his post-decision press conference to steer clear of potential political friction.

“The real focus will be on the language in the Fed's monetary policy statement and comments from Chair Jerome Powell. The Fed chair is likely to tread carefully, avoiding any statements that might cause tension with President [Donald] Trump.”

Bank of America: Stagflation Concerns And No “Powell Put”

Bank of America’s chief economist Aditya Bhave cautioned that the Fed’s stance may come across as hawkish to markets, given its emphasis on economic downside risks.

“Markets could interpret the Fed’s message as hawkish because they are focused on downside risks to activity. But in our view, the ‘Powell put’ is not forthcoming. The SEP forecasts and distribution of risks are both likely to reflect stagflation: weaker growth and higher inflation.”

Bank of America projects headline PCE inflation to average 2.7% in 2024, up from its previous forecast of 2.5%, with Core PCE also at 2.7%. The bank anticipates that the Fed's median projections will still indicate 50 basis points of cuts in both 2025 and 2026, but expects no additional cuts in 2027, along with a higher long-run neutral rate.

Bhave also cautioned against the assumption that the inflationary effects of tariffs will be temporary, referencing past miscalculations by policymakers.

“It does not seem prudent for the Fed to assume, so early in the game, that the impact of tariffs will be transitory—especially given the increase in some (but admittedly not all) measures of inflation expectations, and the fact that ‘team transitory’ suffered a resounding defeat in 2021-22. Cuts seem firmly off the table in the near term.”

Read now:

• Market Bottom Or Another ‘Scared Cat Bounce’? Wall Street Veteran Remains Skeptical

Image created using artificial intelligence via Midjourney.