The Federal Reserve is unlikely to cut interest rates this week despite growing concerns about the state of the US economy and the impact of President Trump's trade agenda.
The market expects the Fed to maintain a moratorium on cuts. This is a move that takes the stimulus away after a significant loss of two weeks, and could cause Trump's rage.
Interest rate futures contracts show a 99% chance that the Fed will hold stable interbank lending rates in the range of 4.25-4.5%, as measured by the CME FedWatch forecasting algorithm.
“The Fed expects to remain stable at its second consecutive meeting, and given the growing uncertainty, there is limited guidance on future policy paths,” an analyst at Deutsche Bank wrote to investors on Friday.
The suspension of interest rate cuts could prompt a bashing of the Fed by President Trump, who frequently broadcasts sentiment about the Fed and its chairman Jerome Powell despite the central bank's legal and institutional independence.
After the Fed suspended rate cuts in January, Trump accused central bankers of failing to “stop the issues they created with inflation.” He also said he knew more about interest rates than Chair Powell, but later admitted that the suspension was “the right thing.”
The market is wobbling in response to changes in Trump's trade policy, which has allowed him to steer complaints from Powell, who has refused to respond to Trump's criticism in the past.
“I will not answer anything about what the President said. I have no comments, no matter what, it is not appropriate for me to do so,” Powell at a January press conference in response to questions about Trump's monetary policy demands.
The Fed will release economic forecasts for the second half of this year at this week's meeting. The final forecast released in December reduced the expected quarterly point reduction in 2025 from 4 to 2, providing a more robust performance target than previously expected.
Analysts at Deutsche Bank and JP Morgan predict that the Fed will maintain a two-cut scenario. Both banks believe that inflation outlook will rise slightly and growth forecasts will be pulled back.
“We expect the median GDP growth expectations will be revised this year and the core PCE inflation will be revised. Given this, we expect the median interest rates this year will not change in 'DOT'.
The price indices for both the Consumer Price Index (CPI) and the Personal Consumption Expense (PCE) showed that inflation was eased in February. CPI fell from an annual increase of 3% to 2.8%, while the PCE price index fell from 2.6% to 2.5%.
However, price increases have risen consistently across both indexes through the fourth quarter, and analysts believe that the Fed will prioritize output risk over risk by maintaining a pause in cuts.
“The risk of recession has overtaken the risk of stags, overtaking the risk of flooding, leaving the market confused between penetration and flattening,” wrote a BNP Paribas analyst in Friday's commentary on this week's Federal Open Market Committee (FOMC) meeting. “Like the December FOMC meeting, the March FOMC meeting does not share the market's view that growth risks dominate inflation risk, and instead focuses on growing fears of inflation.
The US economy is in good condition, but the tariff order blitz and subsequent reversal from the Trump administration have rattled markets, squeezed business and consumer sentiment, and reduced Trump's approval rate for the economy.
The Dow Jones industrial average rose more than 0.5% in Monday's trading, but lost more than 6% of its value over the past month. The 500 companies standard and poor index has fallen by nearly 8%.
Research into consumer and business sentiment over the last few weeks has shown a considerable downward movement. A University of Michigan survey on consumer sentiment showed that inflation expectations were above 4% a year ahead, while a New York Fed survey on consumer expectations showed an increase in households' pessimism about financial outlook.
President Trump's economic approval ratings have also been drooping, with 56% of respondents to recent CNN public opinion disapproving the economy's handling.
According to UN economists, world trade hit a record $33 trillion in 2024, with orders surged in the fourth quarter ahead of Trump's expected tariffs. So far in 2025, global trade volumes have been stable, but UN economists have warned that “uncertainty is looming.”
“It is likely that there is a high possibility of a growing geoeconomic tension, protectionist policies, and trade disputes' expansion,” they wrote in a March Global Trade update. “Recent transport trends suggest a slowdown due to a decline in freight index, particularly showing weak industrial activity in supply chain-dependent sectors.”
