Fed Interest Rate Decision Imminent... Focus on Expected Number of Cuts

"Powell Likely to Maintain
'No Need to Hurry' Stance"

The U.S. Federal Reserve (Fed) is scheduled to announce the results of the Federal Open Market Committee (FOMC) meeting on the 19th (local time). Wall Street expects the Fed to keep the benchmark interest rate unchanged at this meeting but is closely watching how much the rates might be cut this year.

Jerome Powell, Chairman of the U.S. Federal Reserve (Fed). Photo by AP Yonhap News

According to the Chicago Mercantile Exchange (CME) FedWatch on the 18th, the probability of a 50 basis points (1bp=0.01 percentage point) rate cut by December in the federal funds futures market is 33.2%, a 75bp cut is 28.6%, and a 25bp cut is 18.7%. In other words, the outlook favors two or three rate cuts by the end of this year.

The Fed will release its economic projections (SEP), published quarterly, at this meeting. This includes a dot plot showing the FOMC members’ expected level of the benchmark interest rate by the end of this year. After the December meeting last year, the Fed presented a median year-end rate of 3.9%, implying two rate cuts of 0.25 percentage points each. Among the 19 members, 10 projected rates between 3.75% and 4.0%, 4 members expected rates above 4.0%, and the remaining 5 anticipated rates below 3.5%.

On Wall Street, there is analysis that the Fed is in a difficult position amid concerns that the trade war triggered by U.S. President Donald Trump will stimulate inflation and cause an economic recession. Thomas Simons, chief economist at investment bank Jefferies, said, "Tariffs can simultaneously cause slower economic growth and higher inflation, making it difficult for the Fed to decide on policy," adding, "Fed officials are likely to express divergent views in the dot plot forecasting interest rate levels."

Some also believe the Fed will focus more on defending against inflation rather than recession concerns. This is because the core Personal Consumption Expenditures (PCE) price index, which excludes energy and food and is the Fed’s preferred inflation gauge, rose 2.6% year-over-year in January, far from the target of 2%.

Dan North, senior economist at Allianz Trade North America, said, "Especially if tariffs remain, there may be one or no rate cuts this year," adding, "If tariffs cause inflation, the Fed will have to reverse course and will not try to support the economy with rate cuts."

Fed Chair Jerome Powell reaffirmed the Fed’s stance in a speech at the Monetary Policy Forum held in New York on the 7th, stating, "We are in no hurry and monetary policy is well positioned to wait until the effects of policy changes become clearer." This is due to the high uncertainty surrounding tariff policies, as the U.S. has announced it will negotiate individually with countries ahead of the mutual tariff imposition scheduled for the 2nd of next month. Economist Dan North predicted, "At this meeting, the Fed will say again, 'We are in no hurry at all.'"