ING’s Benjamin Schroeder expects the Federal Reserve (Fed) to keep rates unchanged at its March FOMC meeting as higher Oil prices and elevated inflation expectations constrain policy. He notes markets see no cut today, with the first reduction only fully priced by year-end. ING’s economists anticipate slightly weaker growth forecasts, higher inflation projections and a postponement of the 2026 rate cut to 2027.

Fed seen holding and pushing back cuts

"The focus is on the FOMC meeting tonight, with rising inflation on the back of energy market turmoil seen as constraining the Fed. From the market side, the Fed is getting a feed of higher nominal yields, higher real yields and higher inflation breakevens. That combination is hardly one that is conducive to rate cuts."

"As for the immediate decision at hand, no cut is the clear expectation from markets. The vote split is likely to show at least one dissent towards cutting rates coming from Miran, which would be his fourth since joining the Fed. Beyond March, markets are seeing chances rising for a cut starting in the summer, with a cut fully priced in only by year-end."

"One key focus will be the Fed’s new forecasts, including the Dot Plot of individual Fed members' effective rate expectations. In December, the Fed pencilled in one rate cut in 2026 with one further 25bp cut in 2027. Our economists suspect the FOMC will trim growth forecasts marginally, push up its inflation forecast and then delay the 2026 rate cut until 2027."

"That said, given the situation, the Fed will likely have little conviction in its forecasts, and Chair Powell will be certain to underline the challenges in the current volatile environment."

"There will likely be some focus on the balance sheet as well, since the monthly US$40bn pace of reserve management purchases was temporary to begin with and expected to be reduced in April. We think the disappointing impact of the net US$130bn of balance sheet expansion since mid-December on the Fed Funds effective rate deserves questioning."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)