Fed March 2025 FOMC preview: Policy on hold amid uncertainty

As the Federal Reserve convenes for its March 2025 Federal Open Market Committee (FOMC) meeting, market participants and policymakers are focused on the central bank’s stance on interest rates, balance sheet reduction, and economic projections. While the Fed is expected to hold rates steady within the current 4.25% to 4.50% range, the key areas of interest include the updated Summary of Economic Projections (SEP) and signals from Chair Jerome Powell on future policy adjustments. This report explores the potential outcomes and their implications for financial markets and the broader economy.

Rate decision and policy outlook

Rates expected to hold: The Fed is widely expected to maintain the federal funds rate at current levels, reflecting its cautious approach amid economic uncertainty.

Economic projections in focus: The SEP is likely to reveal lower GDP growth expectations while maintaining inflation forecasts at elevated levels, suggesting a prolonged restrictive policy stance.

Balance sheet policy remains uncertain: There is no clear guidance yet on whether the Fed will slow or pause its balance sheet runoff, though market liquidity concerns could influence upcoming decisions.

‘Fed Put’ expectations dismissed: Powell is anticipated to downplay the notion of a Fed-induced market rescue, maintaining a focus on inflation and economic stability.

Economic conditions and key factors

Inflation and growth

Inflation remains above the Fed’s 2% target, with core PCE inflation projected around 2.7% for 2025.

GDP growth is expected to moderate, with estimates potentially revised downward from the previous 2.1% projection.

The labor market has shown signs of softening, but not at a pace that would immediately warrant rate cuts.

Balance sheet considerations

The Fed’s quantitative tightening (QT) program, ongoing since mid-2022, is under scrutiny due to potential reserve scarcity.

Market liquidity conditions are being closely monitored, particularly in relation to Treasury supply and funding markets.

Debt ceiling concerns further complicate the balance sheet discussion, as unresolved fiscal issues could influence liquidity and monetary policy decisions.

Market Expectations and Risks

Dot plot insights: The updated dot plot is expected to show uncertainty regarding the number of rate cuts in 2025, with a near-even split between one and two cuts.

Financial market reactions: Treasury yields, equity markets, and the U.S. dollar could see increased volatility depending on the Fed’s tone regarding future policy moves.

Potential surprises: If Powell signals a more hawkish stance, markets may need to adjust expectations for rate cuts later in the year.

Final note

What to watch As the FOMC prepares to release its decision and updated projections, the key focus areas for market participants include:

The SEP and dot plot: Any changes in interest rate forecasts will impact market sentiment and expectations for monetary policy in the coming months.

Balance sheet guidance: Clarity on the pace of QT could influence liquidity conditions and financial stability.

Powell’s press conference: His tone and messaging on inflation, economic risks, and rate trajectory will be critical for shaping market reactions.

While the Fed is expected to hold rates steady for now, economic data in the coming months will determine when and how policymakers adjust their approach. Market participants should remain vigilant for signals of potential shifts in policy as inflation trends, labor market conditions, and fiscal uncertainties evolve.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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