US Federal Reserve Chairman Jerome Powell testified on February 11, 2025 at Capitol Hill, Washington, before a hearing with the Senate Bank, Housing and Urban Affairs Committee on “semi-annual monetary policy report to Congress.”
Craig Hudson | Reuters
Federal Reserve officials at this week’s meeting are stabilizing interest rates, but are expected to adjust their views on the economy and perhaps future paths for interest rates.
If the market price is correct, there is virtually no chance that central bank policymakers will arise from the current levels of key interest rates covering the 4.25%-4.5% range. Over the past few weeks, Chairman Jerome Powell and his colleagues have advocated a patient approach that doesn’t require a rush.
But they are also expected to drop clues as to where things go from here against the uncertain background of President Donald Trump’s trade and fiscal policy. This includes everything from tweaking forecasts for inflation and economic growth to the frequency they expect to further lower interest rates.
“There’s no chance that it’s going to be cut on Wednesday, so everything else will be more important,” said Dan North, senior economist in Allianz Trade North America. “They are basically going to say, ‘What do you know, we’re not in a hurry right now.’ ”
Certainly, it was a general message from Powell and his colleagues on the Federal Open Market Committee. In a speech earlier this month with New York economists, Powell insisted that central bankers “do not need to be in a hurry” to “be more clear” about where the Trump administration is heading.
New outlook for GDP, inflation and unemployment
Therefore, the public will be slower through updates the Fed makes to quarterly forecasts on interest rates, gross domestic product, unemployment and inflation. Based on recent data, the Fed could raise its inflation outlook for 2025 (in December it lowered its GDP projection (from 2.1%), while its outlook was 2.5% in both core and headlines). Powell will hold a regular post-meeting press conference.
In the rate question, the Federal Open Market Committee uses a “dot plot” grid of individual member intents.
There is a big discrepancy as to what happens there. The committee can maintain its December outlook for two cuts, removing one or both, or adding another as a concern about a potential slowdown. It seems everything is on the table.
“I think it could be one or zero cut this year, especially if tariffs are stuck,” North said. “I don’t think they’re trying to save the economy by cutting interest rates because they know that if they blow out inflation, they’ll have to go back and start over.”
Economists worry that Trump’s tariffs could rekindle inflation, especially if the president becomes more aggressive after the White House unlocked a global review of the tariff situation on March 2.
According to Macquarie’s global FX and Rate Strategist Thierry Withman, investors are right to worry about the direction the FOMC is set to.
“That worry will be borne by suspicions that the Fed has given up control of macroeconomic policies over the Trump administration and are no longer in charge,” Wizman wrote. “Given current uncertainty and recent rise in inflation expectations, the Fed could show three more interest rate cuts, as well as push two more rate cuts, leaving only one cut at the median 2025 “dots.” ”
There are still two or three cuts in the market
If the Fed decides to stick to two cuts, it is likely that it will only be “to avoid adding to the recent market turbulence,” Goldman Sachs economist David Merriel said in a memo.
The average of major stock markets is hovering around the correctional area. Or it’s down 10% from the high.
In the past, under the idea of the “Fed Put”, the market has come to expect central banks to ease their policies in response to market uncertainty. Traders do not expect an initial rate reduction until at least June, and are measuring the possibility of one additional quarterly percentage point easing and about 50-50 chances by the end of the year, according to CME Group’s FEDWATCH FUDS futures pricing measurements.
But it could even be too ambitious, Wisman said.
“In reality, the market seems too difficult for the Fed, and instead of signaling its own trust to its outlook, the Fed could issue a signal of no confidence. In other words, the FOMC meeting might leave many questions unanswered, like a press conference by Jay Powell.
The committee can also address a “quantitative tightening” program, where each month the establishment of revenue from mature bonds allows the balance sheet to be deployed. The market is widely anticipating that the Fed will close its program later this year, with recent meetings featuring discussions on how it will handle the central bank’s $6.4 trillion Treasury and mortgage-backed securities portfolio.
