US Interest Rate Decision Prep

On Wednesday 19th of March at 14:00 ET, the FOMC is set to release the results of their latest monetary policy meeting, as well as the latest Summary of Economic Projections.
Here are some views on what to expect.

General Expectations
Markets and median analyst expectations expect the FOMC to keep rates unchanged at 4.5%.
In the unlikely event that rates are cut, we would expect a large amount of strength in US stocks, and weakness in the dollar and government bond yields, as pricing in for the expected rate cut is undone and reversed.
But If the hold is realized, attention will turn to the rate statement and the Summary of Economic Projections.

If the rate statement is more hawkish (underlines uncertainty about the strength of the jobs market and inflation return to target), this could indicate to the markets that the pace of rate cuts may slow down.
If the Summary of Economic Projections shows the median Fed official looking for less cuts this year than previously expected by the markets, this would be viewed as hawkish, especially if it was joined by higher median inflation expectations, and higher GDP estimates.
This scenario would be likely to cause weakness in US stocks, and strength in the dollar and government bond yields.

If the rate statement is more dovish (underlines increased confidence in inflation return to target, and dissatisfaction in the strength of the jobs market) this could confirm that the Fed can go ahead with further rate cuts.
if the Summary of Economic Projections shows the median Fed official looking for more rate cuts than the markets were anticipating, especially if this was joined by lower median inflation expectations and lower GDP estimates, then it would be likely to strengthen US stocks and weaken the dollar and government bond yields.

Commentary
Wells Fargo
The FOMC remained on hold at its January 29 meeting, as a strong economic environment and policy uncertainty left it operating in “wait and see” mode. Economic activity has moderated since then.
The labor market has continued to cool, and consumer spending experienced a lackluster start to the year.
Even so, we expect the FOMC to remain on hold at the conclusion of its March 19 meeting.
The cooling in the labor market has been gradual, and inflation, though it remains frustratingly above the Committee’s 2% target, has cooled.
The core Consumer Price Index subsided to its lowest year-over-year rate since 2021 in February.
Furthermore, Chair Powell has noted that the FOMC “does not need to be in a hurry” to adjust its stance on policy.

The conclusion of the March meeting will bring an updated Summary of Economic Projections.
We expect the median participant to continue to reflect 50 bps of further easing this year, though if there were to be a move in expected easing, we believe the risks are skewed more toward 75 bps rather than 25 bps.
Our own forecast calls for 75 bps over the rest of the year, as we believe the slowdown in the labor market will lead the Committee to cut in June in addition to cuts in September and December.

Unicredit
The Fed is expected to keep the federal funds rate at 4.25-4.50% following its March 19th meeting.
Powell emphasized patience in adjusting rates, citing inflation slightly above target and a balanced labor market.
Core PCE inflation rose 0.3% in January but likely due to seasonality, with the year-on-year rate easing to 2.6%.
February core CPI inflation slowed to 0.2%, but PPI components for core PCE were stronger.
Job growth remained solid, with nonfarm payrolls averaging 200k over three months, though unemployment ticked up to 4.1%.

The economic outlook remains uncertain due to Trump’s policy measures, including tariffs.
A decline in real personal consumption was likely weather-related, but weak consumer sentiment and lower equity prices pose risks.
Short-term inflation expectations have risen due to tariff concerns, with further potential trade actions expected in April.

UBS
Chair Powell is expected to deliver a stronger message on restoring price stability at the upcoming FOMC meeting. Interest rates are unlikely to be cut, though there is some risk of tapering balance sheet runoff.
The key focus will be the Summary of Economic Projections and Powell’s press conference. Given worsening inflation data, the “dot plot” median is expected to remove a 2024 rate cut, with a possibility of no cuts in 2025.
However, a one-cut median remains the base case. Powell’s rhetoric is expected to be more forceful, signaling a “do whatever it takes” approach.

In the SEP, the unemployment rate may be revised down, while real GDP growth is likely to be marked lower.
Improved productivity could lead to an upward revision of the longer-run GDP growth median. Core PCE inflation for 2025 is expected to be revised up, with the anticipated 0.34% February increase sustaining higher inflation estimates.
This could push the median dots higher, effectively cancelling out a potential rate cut. The FOMC is expected to project inflation reaching its 2.0% target by 2027.

Previous Release
In the last FOMC meeting on January 29th, the Fed left rates unchanged at 4.5%.

At this meeting, the Fed statement did not include language that inflation had made progress toward 2% objective as it had in December statement.
It also noted that the Unemployment rate has stabilized at low level, labor market conditions remain solid; replacing reference in previous statement to conditions having eased.

This change in rhetoric in the statement caused some weakness in US stocks, and strength in the dollar and government bond yields.