Market reaction to the March FOMC was dovish despite little sign of support for a rate cut in the near term.
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EXECUTIVE SUMMARY:
- The market reaction to both the March FOMC’s economic projections/statement release and the press conference was notably dovish.
- Rate futures ended the event implying 65bp of cuts for 2025, up from 56bp before the meeting, and 61bp before Chair Powell took to the podium – in other words, leaning increasingly toward 3x 25bp cuts this year than 2.
- To our ear, though, Powell was actually neutral-to-cautious, reflecting the hawkish shift in the Dot Plot distribution and the increasing uncertainty in the outlook keeping the Committee hesitant to make their next move.
- The most dovish aspect of the press conference was Powell saying that the FOMC's base case was that the inflationary impact of tariffs would be "transitory".
- But he sounded constructive on economic activity data and a little worried about progress in some key categories of inflation, noting that tariffs meant that further progress may be delayed, and that the "right thing to do is to wait here for greater clarity".
- Overall we didn't come away believing there is much if any support for a rate cut in the near-term, in keeping with a dot plot that implied moves only later in the year if at all.
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