The Federal Reserve is widely expected to hold interest rates steady at its March meeting, despite economic uncertainty and a looming trade war. Slowing economic growth, sticky inflation, and uncertain policy outcomes from the Trump administration are creating tension among central bankers.
Inflation, currently 2.6%, above the Fed’s 2% target, is causing risks that tariffs will lead to another price spike. The labor market, which showed small cracks in employment last year, is also a concern. Fed officials have been careful not to discuss monetary policy limitations when it comes to trade wars and other Trump policies.
Roger Hallam, global head of rates at Vanguard, believes the Fed’s likely next move is a cut toward the end of the year, but notes that uncertainty in the macro outlook makes it right for them to assess the economic implications of new administration policies. Bank of Canada officials have offered a bold statement about the ability of central bankers to manage the impact of tariffs on the economy.
Despite growing investor anxiety, analysts say the Fed is well-positioned to sit tight and remain patient. There’s no financial crisis or big surge in unemployment, allowing the Fed to wait and see how the economy develops over the second half of the year. Investors are nearly certain that the Fed will continue its pause in March, but bond futures markets now price three to four rate cuts by the end of 2025.
The odds of a cut at the May meeting have risen to 25% from 18% last month, according to data from the CME FedWatch Tool. However, Fed Chair Jerome Powell has consistently emphasized the central bank’s independence and ability to make decisions based on data rather than predetermined paths.
Source: https://www.morningstar.co.uk/uk/news/262144/us-fed-rate-decision-what-to-expect-on-march-19.aspx