US Fed Policy: The US Federal Reserve is all set to announce its monetary policy decision on March 19, after a two-day review meeting to deliberate on the central bank’s benchmark interest rate and the state of the US economy. This is the second policy verdict by US Fed Chair Jerome Powell-led Federal Open Market Committee (FOMC) for 2025 and holds significance after US President Donald Trump‘s tariff hikes escalated a potential global trade war.
According to Wall Street analysts, Trump’s tariff policies also threaten US economic growth, and US inflation can likely quicken due to rising price pressures in the next few months. Traders see the US Fed lowering borrowing costs by at least two 25-basis point cuts by December, with the first expected in July.
Follow Live Updates: US Fed Meeting LIVE: Wall Street drifts higher ahead of Powell-led FOMC policy verdict, Dow Jones up 260 points
“The US Fed chair, while suggesting future rate trends, always says that it will depend on ‘ incoming data and evolving outlook’. This time, the emphasis will be on the evolving outlook since the present data is stable. Still, the evolving outlook is totally unpredictable thanks to the trade war,” said Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
“The US Fed will likely keep the rate unchanged in its decision. The 2024 December dot plot indicated two rate cuts in 2025, down from four in September. A slowing US economy might warrant more cuts. Still, the Fed is unlikely to indicate so since it will be in a tight spot if the US economy moves towards stagflation, which is a likely scenario,” added Dr V K Vijayakumar.
US Fed Policy Decision Today: Here are 5 indicators to watch
1.US inflation
Last week, US Department of Labor data showed the consumer price index (CPI) rose 2.8 per cent annually in February, below Wall Street estimates. On a monthly basis, US inflation rose 0.2 per cent last month, the smallest gain since October, after accelerating by 0.5 per cent in January. In the 12 months through February, core CPI increased 3.1 per cent. That was the smallest gain since April 2021 and followed a 3.3 per cent rise in January. The core CPI rose at a 3.6% per cent annualized rate in the three months to February.
2.US economic growth
US economic growth slowed in the fourth quarter, and the loss of momentum appears to have persisted early this quarter amid cold temperatures and concerns that tariffs will hurt spending through higher prices. GDP estimates for the January-March quarter range from a 2.4 per cent contraction to a 1.3 per cent growth rate.
US gross domestic product (GDP) increased at a 2.3 per cent annualized rate last quarter after accelerating at a 3.1 per cent pace in the July-September quarter, said the US Commerce Department’s Bureau of Economic Analysis (BEA) in its second US GDP estimates for the fourth quarter.
3.US Fed benchmark interest rate
Most economists expect the US Fed to hold the benchmark interest rates steady at the current 4.25-4.50 per cent despite ‘stagflation’ risks threatening the world’s largest economy. Earlier this week, Jerome Powell said he will likely keep the interest rate unchanged in the coming months as it waits for widespread uncertainty stemming from President Donald Trump’s policies.
4.US Fed ‘dot plot’
The dot plot refers to the US Fed’s Summary of Economic Projections, a quarterly forecast on the economic outlook from all 12 regional Fed bank presidents and the seven members of the Fed’s board of governors. Their forecasts are anonymous and are displayed simply as a dot on a plot.
The accompanying statement, US Fed Chair Jerome Powell’s press conference and the central bank’s Summary of Economic Projections – including the dot plot – will be parsed for clues regarding the timing of the US Fed’s next rate move.
5.US unemployment rate
US job growth picked up in February, but cracks emerged in the once-resilient labour market amid the chaotic trade policy and deep federal government spending cuts that threaten economic growth this year.
The Labor Department’s employment report, the first under Trump’s watch, showed a broader measure of unemployment surging to near a 3-1/2-year high last month as the ranks of part-time workers swelled.
Underscoring the softening labor market trend, the unemployment rate rose to 4.1 per cent from four per cent in January. The labor force participation rate fell to a two-year low of 62.4 per cent from 62.6 per cent in January.
Nonfarm payrolls rose by 151,000 jobs after a downwardly revised 125,000 in January, said the Labor Department’s Bureau of Labor Statistics. Federal payrolls, excluding the post office, declined by 6,700 after tech billionaire Elon Musk’s Department of Government Efficiency fired thousands of employees in an effort to shrink the government and slash spending.
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