Key Focus of This Week's US Fed Decision: How Far Are We From the Next Interest Rate Cut?

At the US Fed's March policy meeting, which is almost certain to hold rates steady, investors may closely look for one clue: how far is the Fed from its next interest rate cut? Economists currently widely expect the Fed to keep the benchmark rate unchanged at this week's meeting, as US President Trump's tariff policies are expected to both stimulate inflation and suppress economic growth this year, putting the Fed in a dilemma and forcing it to remain in a "wait-and-see" mode for now. However, KPMG Chief Economist Diane Swonk believes that a more important question for the future might be whether Fed officials can ignore signals of rising inflation expectations and act according to the market's current forecasted path of interest rate cuts, or whether they will decide to keep rates unchanged for an extended period until they are convinced that the inflation rise is proven to be temporary. Currently, traders in the interest rate derivatives market anticipate that the Fed is likely to cut rates three times this year, with the first cut expected to begin in June.
After cutting interest rates by a total of 100 basis points during the last three policy meetings of 2024, the Fed kept the federal funds rate target range unchanged at 4.25% to 4.5% in January this year. Although a series of recent economic data indicates increasing downward pressure on the US economy, and the combination of Trump's tariffs and spending cuts has brought significant uncertainty to the economic outlook, the Fed seems hesitant to further cut rates—because inflation remains sticky, and inflation expectations tracked by the University of Michigan have risen sharply in recent times. In his last public appearance before the policy meeting, Powell stated that the Fed does not need to rush and is trying to give itself some breathing room. "The cost of being patient is very low. The economy is performing well and does not actually require us to take any action, so we can and should continue to wait and see," Powell said. Powell also pointed out that the Fed hopes to understand the "net effect" of Trump's policy changes in trade, immigration, fiscal policy, and regulation. However, economists currently unanimously believe that this will create a complex policy balancing challenge. When will the next interest rate cut period occur? Opinions in the industry are divided. Former Boston Fed President Eric Rosengren recently stated in a media interview that he now believes the economy will weaken significantly later this year, and both hawks and doves within the Fed will agree to cut rates one to two times in the fall. Rosengren said, "I originally expected tariff policies to have no substantial impact and believed that policy would remain stable this year. But current expectations indicate that the economy will weaken to a sufficient extent, and they (the Fed) will have to restart the easing cycle for the wrong reasons."
[Reproduction must retain the source - SMM] Key Focus of This Week's Fed Decision: How Far Is the Next Interest Rate Cut? https://news.smm.cn/news/103230796