The Federal Reserve will expand its break on interest rates on Wednesday, because the aggressive approach of President Trump for rates and other economic policy is feeding extreme uncertainty about the prospects for inflation, growth and unemployment.
A decision to be Pat would retain interest rates at 4.25 percent to 4.5 percent, a level that was reached in December after a series of cutbacks in the second half of 2024.
Fed officials are in a wait -and -see mode, who follow the incoming data closely for signs that pick up the progress of inflation after a period of stuck, or that a different solid labor market starts cracking. Whatever they want is more clarity about what the Lord Trump has in store for the economy after a whirlwind of tariff announcements, cuts on the government and deportations.
The FED will release its last policy statement at 2 p.m. in Washington, after which Jerome H. Powell, the FED chairman, will hold a press conference.
This is what you should pay attention to on Wednesday.
How many cuts?
With the break of the FED well -off, perhaps the most important part of the March meeting will come in the form of the new 'Dotplot' of the Central Bank.
The three -monthly released, it follows what civil servants will expect with the interest rates for the rest of the year and for a longer time horizon. The Puntplot Aggregates -forecasts of all 19 FED officials, who produce a median estimate that is regularly quoted as the clearest reading of where the FED expects the interest rates will land.
The last time the pointed plot was updated, in December, this year, officials expected two interest rates, or a reduction of half a percentage point this year. That was considerably less than what was predicted in September, when civil servants fall a full percentage of point.
Some economists brace themselves that those expectations are being reduced, whereby officials only signal one cut this year. Others think that policymakers remain in two cuts, even if they increase their predictions for inflation and lower them because of Mr Trump's policy.
Civil servants are most focused on the net effect of the president's plans, which means that they do not look at a policy, but make the balance of how each interaction has and possibly compensates for another. But in view of the size of Mr Trump's tariff threats and what he has so far imposed on the largest trading partners in the country, the worldwide trade war has been a central stage in debates about the economy process.
Financial markets set up their hope that there will be at least two cuts next year, because a weakening economy will take advantage of the Fed to take action.
A new playbook for Trump?
With a global trade war now in full swing, the big question for the FED whether it will use a Playbook will use that policy makers are in use during the last brush of the Central Bank with large-scale rates in 2019, during the first Trump administration. At the time, the Central Bank reduced interest rates by 0.75 percentage points as a form of insurance against increasing concern about growth. Inflation was subdued at the time, giving civil servants flexibility to look beyond every temporary increase in consumer prices that result from rates.
The Fed does not seem to have that luxury this time. Part of the problem is that the rates that Mr. Trump has put on the table are much more aggressive than everything that is presented during his first term. They can lead to much higher input prices, together with delaying exports, since other countries take revenge on their own taxes. In the meantime, inflation is still uncomfortable and the progress to bring it back to the goal of 2 percent of the FED has recently been very uneven.
During an event this month, Mr Powell started to outline how the Fed would approach the situation.
“In a simple case in which we know it is a one -off thing, the textbook would look through it,” he said, referring to a situation in which the Fed would not respond to a rate -related price increase. But a “series” of larger shocks If inflation is not yet under control, that Calculus could change, Mr Powell warned at the University of Chicago Booth School of Business Event.
“If the rises are greater, it would matter, and what really matters is what happens with inflation expectations in the longer term.
This time, Mr Powell will probably be asked more about the Trade War Playbook of the Fed, as well as what the central bank will do if Mr Trump's other policy and the other policy of Mr Trump stop in a more persistent way in a more persistent way, while she also hits growth.
That is a recipe for what is known as stagflation, a situation that would be a huge challenge for the FED, which is responsible for keeping inflation and the labor market healthy and stable.
Will the upcoming debt limit be a factor?
Although the majority of the focus remains on the decisions of the FED about the interest rates, the March meeting can also cause changes to another important instrument in the central bank's toolkit: the balance.
During the last meeting in January, policy makers and their employees discussed the possibility of reducing or pausing the reduction of the approximately $ 6.8 trillion portfolio of the government -supported effects of the FED. The reason is to prevent the market painters from being connected to a continuous impasse about the debt ceiling, which pops up how much money the government can borrow to meet its financial obligations.
The Ministry of Finance uses what the 'extraordinary measures' calls to stay under the debt limit and to ensure that the United States does not fail to fault. Ultimately, those measures will be exhausted, which means that the congress must increase the debt ceiling.
Since the mid -2022, after its balance, the Fed reduced almost $ 9 trillion as a result of his aggressive efforts to strengthen financial markets at the start of the pandemic, after its balance reached almost $ 9 trillion since the start of the pandemic, after her balance reached nearly $ 9 trillion. Last May, the central bank delayed its pace of allowing mature effects to roll away and has since maintained it.
What the FED tries to avoid is a situation in which the amount of cash flow that flows into the banking system falls too low and causes disruptions in financing markets in the short term, as was the case in September 2019.
