The Federal Reserve is unlikely to cut interest rates this week despite growing concern about the state of the U.S. economy and the impact of President Trump’s trade agenda.
Markets are expecting the Fed to maintain its pause on cuts, a move that would deprive them of stimulus following two weeks of sizable losses and that could incur the wrath of Trump.
Interest rate futures contracts indicate a 99-percent probability that the Fed will hold interbank lending rates steady at a range of 4.25 to 4.5 percent, as measured by the CME FedWatch prediction algorithm.
“We expect the Fed to hold rates steady for the second consecutive meeting and, given heightened uncertainty, provide limited guidance about the policy path ahead,” analysts for Deutsche Bank wrote in a Friday note to investors.
The pause on rate cuts could prompt some Fed-bashing by President Trump, who has frequently broadcast his feelings about the Fed and its chair Jerome Powell despite the legal and institutional independence of the central bank.
After the Fed paused its rate cuts in January, Trump accused central bankers of failing “to stop the problem they created with inflation.” He also said he knew more about interest rates than chair Powell though he later conceded that the pause was the “right thing to do.”
With markets teetering in response to Trump’s changing trade policies and consumers feeling down about the economy, Trump could direct frustrations at Powell, who has declined to respond to Trump’s criticism’s in the past.
“I’m not going to have any, any response or comment whatsoever on what the President’s said. It’s not appropriate for me to do so,” Powell during a January press conference in response to a question about Trump’s monetary policy demands.
The Fed is set to release its economic projections for later this year at its meeting this week. Its last projections released in December slashed the number of quarter-point rate cuts expected in 2025 from four to two and delivered more robust performance targets than previously expected.
Analysts for Deutsche Bank and JP Morgan are predicting the Fed to maintain its two-cut scenario. Both banks see the inflation outlook rising slightly and for growth projections to be pulled back.
“We expect that median GDP growth expectations for this year will be revised down and for core PCE inflation will be revised up. Given this, we expect no change in the median interest rate forecast ‘dot’ for this year, still looking for two 25-basis point cuts,” Michael Feroli wrote for JP Morgan.
Both the consumer price index (CPI) and the personal consumption expenditures (PCE) price index showed inflation easing in February. The CPI fell from a 3-percent annual increase to 2.8 percent, and the PCE price index fell from 2.6 percent to 2.5 percent.
However, price increases rose consistently in both indices through the fourth quarter, and analysts think the Fed will still prioritize the risk of inflation over risks to output by maintaining its pause on cuts.
“Recession risks have overtaken stagflation risks, leaving markets confused between steepening and flattening,” analysts for BNP Paribas wrote in a Friday commentary about this week’s Federal Open Markets Committee (FOMC) meeting by the Fed. “We think the March FOMC meeting – like the December FOMC meeting – might not share the market’s view that growth risks are dominating inflation risks and instead bring back focus on heightened inflation fears.
While the fundamentals of the U.S. economy are in good shape, the blitz of tariff orders and subsequent reversals from the Trump administration have been rattling markets, weighing on business and consumer sentiment, and pulling down Trump’s approval rating on the economy.
The Dow Jones Industrial Average was up more than half a percent in Monday trading but has lost more than 6 percent of its value over the past month. The Standard and Poor’s index of 500 companies is down nearly 8 percent.
Surveys of consumer and business sentiment in recent weeks have shown substantial downward movement. The University of Michigan’s survey of consumer sentiment showed year-ahead inflation expectations spiking above 4 percent while the New York Fed’s Survey of Consumer Expectations showed increasing pessimism among households about their financial prospects.
President Trump’s approval rating on the economy has also sagged, with 56 percent of respondents to a recent CNN poll showing disapproval on his handling of the economy.
Global trade hit a record $33 trillion in 2024 with orders surging in the fourth quarter ahead of Trump’s expected tariffs, according to United Nations economists. While global trade volumes have remained stable so far in 2025, the UN economists warn that “uncertainty looms.”
“Mounting geoeconomic tensions, protectionist policies and trade disputes signal likely disruptions ahead,” they wrote in a March global trade update. “Recent shipping trends also suggest a slowdown, with falling freight indices indicating weaker industrial activity, particularly in supply chain-dependent sectors.”
