Not that the standard interest rate for federal funds was maintained at a constant level, is what the Federal Reserve’s most essential meeting revealed. That was anticipated.
Otherwise, what emerges from the meeting are indications that Fed politicians are dovish in spite of worries that a crisis may be on the horizon. A continuation of that bend doesn’t look good for interest charges to drop anytime soon. Additionally, it might cause the Fed to fight with the Trump presidency.
The interest-rate forecasts by politicians are the first to indicate the symptoms. In contrast to the 19 Fed governors and bank president who predicted two interest rate reductions in 2025, just 11 of 19 of those predicted in the December of last year’s projections.
These policymakers ‘ projections for inflation are worse than they were in December, with a median of 2.8 %, up from 2.5 % three months ago. Keep in mind that the Fed has consistently urged it to resume rates reduction when it is confident that inflation is nearing its target of 2 %.
The Fed’s benchmark federal funds rate, which is currently between 4 14 % and 4 12 percent, is projected to decline to even 3.1 % in the long run.
Todd Hultman, a former DTN analyst, stated in September that lowering the fed funds rate to 3 % was essential to easing the farm economy’s strain.
The only thing that could have pushed the Fed to resume lowering rates was the possibility of a recession, given that inflation is so volatile. However, policymakers remain positive about the outlook of the economy despite recent consumer sentiment data that has sparked concerns about the recession in some investors.
They began their post-meeting statement by lowering their GDP growth forecast for 2025 from 2.1 % to 1.7 % while also lowering their GDP growth forecast for 2025.” Recent indicators suggest that economic activity has continued to expand at a steady pace,” they said. In recent months, the unemployment rate has stabilized at a low level, and labor market conditions are still favorable.
Following the Fed’s announcement, the stock market ended. However, at least some Wall Street analysts still believe that bad economic news is on the horizon.
If they’re correct, the Fed will find itself in a difficult position. A weak economy typically results in a decrease in inflation, enabling the Fed to cut rates while remaining faithful to its dual goals of ensuring stable prices and maximum employment.
The Fed would have to choose between battling inflation, which would require leaving rates high or even rising, and boosting the economy, which would mean rate cuts, if the economy actually suffered a significant decline while inflation remained high ( a situation known as stagflation ). The Fed couldn’t possibly have both.
If it decides to combat inflation, it might face a president who favors lower interest rates and believes he should be entitled to his or her vote. It would be important to protect the Fed’s independence.
The Fed’s decision to slow down the unwinding of its$ 6.8 trillion balance sheet appeared to be dovish.
The Fed has allowed the Treasury and even mortgage debt to mature without being replaced at the monthly rate of$ 60 billion, which includes$ 35 billion in mortgage instruments and$ 25 billion in Treasuries. Beginning in April, it will only permit Treasuries worth$ 5 billion to expire without replacement.
The result of the shrinkage is deflationary and will squeeze the reserves commercial banks have to play with. However, the Fed isn’t trying to ease monetary policy by slowing the shrinkage. It is avoiding issues with the overnight lending market that could arise as a result of Congress’s proposed summer increase in the federal debt ceiling.
Governor Christopher Waller was the one person who cast a ballot against the Fed’s most recent actions. His objection to the Fed’s asset holdings decline declined more than the decision to hold rates steady. Despite speculation, Waller is running for president in a bid to replace Jerome Powell, whose term will end in 2019.
Will it be interesting to see if the Fed’s hawkish attitude will hold up the next few months ‘ economic data. Although the stock market’s initial response was positive, many Wall Streeters don’t share the Fed’s optimism about the economy. No one wants a recession, but the Fed’s next wave of forecasts could be very different if we do.
Urban Lehner, a former long-time Asia correspondent and editor for the Wall Street Journal, is DTN/The Progressive Farmer’s editor emeritus.
This article, which was originally published on March 19 by the latter news organization and is now being republished by Asia Times with permission, is titled” Copyright 2025 DTN/The Progressive Farmer.” All trademarks are reserved. Follow Urban Lehner ; on ; X @urbanize.