Chair Powell to 'pour cold water' over US recession fears in Fed meeting

The US Dollar Index has lost almost 6% of its value since early-February amid a combination of Trump’s erratic tariff policies and concerns over the state of the US economy.

Monday’s retail sales report has done nothing to ease these fears, and Fed officials will have a tough task on their hands at Wednesday’s FOMC meeting, as they grapple with signs of a growth slowdown on the one hand, with elevated inflationary pressures on the other.

While a downward revision to the 2025 GDP projection seems highly likely, we don’t think that Chair Powell will warn of impending trouble just yet, and he may pour cold water over the possibility of a sharp slowdown in the US economy. With inflation still above target and the US labour market performing quite well, we think that Powell will again stress that the Fed is in no rush to cut.

We expect the “dot plot” to show just two 25bp cuts in 2025, as it did in December, which would provide officials with flexibility to either slow or accelerate the easing cycle dependent on economic conditions.

In our view, both recession concerns and the recent repricing in Fed rate expectations have been excessive, and we go into today’s meeting seeing risks to the dollar as skewed to the upside.