March flashlight for the FOMC blackout period

Summary

• A moderation in economic activity since the FOMC last met in January is unlikely to shift the Committee out of wait-and-see mode at its upcoming meeting on March 19. We look for the Committee to maintain its target for the fed funds rate at its current range of 4.25%-4.50%.

• Concerns over the growth outlook have intensified in recent weeks amid the swirl of policy uncertainty related to U.S. trade and federal spending. Yet the labor market's cooling has continued to be gradual on trend, while inflation remains frustratingly high. With Chair Powell reiterating ahead of the blackout period that the FOMC does "not need to be in a hurry" to adjust policy, we expect the FOMC will continue to await greater clarity on how policy changes affect its employment and inflation mandates.

• We expect the post-meeting statement to make a nod to the recent moderation in growth and labor market conditions, but to otherwise be little changed. The Committee likely will state that risks to its employment and inflation goals are "roughly in balance." That said, we would not be surprised for Chair Powell to make a dovish comment or two at the press conference that reveal a slight easing bias by acknowledging that the downside risks to the labor market have increased somewhat.

• The updated Summary of Economic Projections likely will show the median participant continues to expect 50 bps of easing this year. With markets currently pricing in 73 bps of cuts by the end of the year, a shift to one cut could further tighten financial conditions. Yet, as inflation remains roughly 50 bps above target and officials are cognizant of keeping inflation expectations anchored, three or more cuts might be too much for the Committee's hawks. If the median dot for 2025 does change, we think it is more likely to signal 75 bps of easing rather than only 25 bps of rate cuts.

• Elsewhere in the SEP, we expect to see a modest downgrade to GDP growth for 2025, with the median estimate dipping a touch below 2.0%. At 4.3%, the median estimate for the unemployment rate at year-end still looks about right, although an increase to 4.4% would not surprise us. Estimates for inflation are likely to edge up further; we look for the median estimate for core PCE inflation at the end of the year to rise from 2.5% to 2.7%.

• The March meeting likely will include a discussion about whether a shift in balance sheet policy is warranted. This marks the next step toward an eventual end to runoff. We do not expect any changes to balance sheet runoff until the May 7 meeting when we expect the Committee to announce the end of quantitative tightening.

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