Synopsis:
CIBC sees no surprises in the Fed’s March FOMC decision, with rates held steady and the dot plot unchanged, signaling two cuts in 2025, two in 2026, and one in 2027 (total 125bps of easing over three years). However, there is now more consensus among FOMC members on this path. The Fed also downgraded GDP projections, raised PCE inflation forecasts for 2025, and slightly increased the unemployment rate outlook, highlighting rising uncertainty. Additionally, the QT program was significantly slowed, though this appears to be a technical adjustment rather than a policy shift. Powell faces growing challenges balancing risks to growth and inflation, reinforcing a cautious, data-dependent approach.
Key Points:
1️⃣ Fed Holds Rates, No Changes to Rate Path 🏦
- Dot plot unchanged: Two cuts in 2025, two in 2026, and one in 2027.
- Total expected easing remains 125bps over three years.
- More consensus among FOMC members compared to December.
2️⃣ Growth Downgraded, Inflation Revised Higher 📊
- GDP slightly downgraded across all years.
- 2025 core PCE inflation revised up by 0.3pp, headline inflation slightly higher in 2026.
- Unemployment rate projection ticked higher for 2025, suggesting labor market concerns.
3️⃣ QT Significantly Slowed, But Not a Policy Shift 🔄
- Likely due to banking system reserves and debt ceiling concerns.
- Not an indication of broader policy easing.
4️⃣ Powell’s Challenge: Dual Mandate Pushing in Opposite Directions ⚖️
- Downside risks to GDP vs. upside risks to inflation & unemployment.
- Uncertainty remains high, especially with inflation expectations still sticky ahead of potential trade war impacts.
- Powell expected to maintain a cautious, data-dependent stance.
Conclusion:
CIBC sees the Fed maintaining its cautious stance, with two cuts still expected in 2025 but higher uncertainty around growth and inflation risks. The QT slowdown is a technical move rather than a policy shift, while Powell faces a growing challenge in balancing economic risks. The Fed’s cautious, data-driven approach is likely to remain in place.
