The Federal Open Market Committee (FOMC) is not expected to lower interest rates at its upcoming meeting on March 19, according to fixed-income market forecasts. Instead, attention will be on any signals regarding a potential rate cut in May, which remains uncertain but possible. Statements from FOMC policymakers at the March meeting could significantly influence market expectations.
Minimal Chance of a March Rate Cut
Market data from the CME FedWatch Tool indicates only a 3% probability of an interest rate cut at the March meeting. Federal Reserve Chair Jerome Powell, in a March 7 speech in Chicago, noted that while inflation has broadly declined, it still remains above the Fed’s 2% target. Additionally, Powell emphasized that the labor market remains strong and balanced. Given these conditions, the Fed appears unlikely to ease monetary policy in the near term.
However, growing recession risks, fueled by tariffs and government spending reductions, have injected uncertainty into the economic outlook. While the Fed typically avoids surprising financial markets, only a significant downturn before March 19 would likely prompt an unexpected rate cut.
May Rate Cut Still Possible
While a March rate cut is improbable, markets assign nearly a 40% chance to a reduction at the FOMC’s May 7 meeting. Two key factors could drive such a decision: evidence of slowing inflation or concerns about economic weakness. Powell’s recent remarks suggested a slightly more cautious outlook on the economy, and if other policymakers share this sentiment, it could increase the likelihood of a rate cut in May.
Upcoming economic data will be crucial in shaping the Fed’s decision. Key reports include the Consumer Price Index (CPI) releases on March 12 and April 10, as well as job market updates on April 4 and May 2. These indicators will provide insight into inflation trends and labor market conditions.
What to Watch at the March Meeting
The FOMC will release an updated Summary of Economic Projections, providing insights into policymakers’ rate expectations. In December, officials projected an average of two rate cuts in 2025, with some advocating for more. Currently, markets anticipate three cuts. If the March projections indicate a shift toward more aggressive easing, it could strengthen expectations for a May rate cut.
As the Fed navigates a delicate balance between inflation control and economic stability, its March meeting will be closely scrutinized for any hints about the direction of monetary policy.
Related Topics:
