while WE slept: bonds are BID (on ~90% normal volumes); FOMC narratives being rewritten, stagflation or NOT, choose your own ending; Team Transitory BACK ...? rates downtrend resumes...
Wednesday, Mar 19, 2025 - 06:02 PM ZH: Fed Holds Rates, Signals QT Taper; Blames Trump 'Uncertainty' For Stagflationary Outlook
Since the last FOMC meeting, on Jan 29th, a lot has changed...
From an economic perspective, growth expectations have plunged and inflation prints have been wildly noisy...
Wednesday, Mar 19, 2025 - 10:50 PM ZH: Wall Street Reacts To The Dovish FOMC And The (Mini) "Powell Put"
As broadly expected, the Fed held rates steady for 2nd time in the 4.25%-4.50% range with the update dot-plot showing 2x cuts by year end but showing large forecast dispersion within the Committee and a more hawkish outlook compared to December (9 officials showing 2x cuts vs 8x showing 1 cut or less) while the median estimate of the Fed’s neutral rate was kept steady this time, because - as Powell explained later - the increase in inflation expectations and the drop in growth forecasts offset each other…
3/19/2025 CalculatedRISK: FOMC Statement: No Change to Fed Funds Rate; "Uncertainty Increased"
CalculatedRISK: FOMC Projections: GDP Revised Down, Inflation Revised Up
… AND as the day came to a close …
Wednesday, Mar 19, 2025 - 08:00 PM ZH: Stocks, Bonds, Gold, & Crypto Soar As 'Powell Put' Appears
The Fed left (median) rate expectations trajectory unchanged (despite stagflationary adjustments to forecasts), but the 'dot' adjustments were hawkish
The Fed tapered QT bigly (dovish) - “People really like that” when the Fed did the last slowdown, he says. You can go “slower for longer.”
Powell poured cold water on both the Trump 'recession' narrative - Recession risks have “moved up, but it’s not high.”
Powell pissed off the MSM by rubbishing the UMich (soft survey data) inflation expectations - Powell says the University of Michigan inflation expectations data is “an outlier”
…The outcome - everything is up (except the dollar)...
… with more from the Global Wall St inbox just below, well, its prolly best to just move right along and get to it. But first … here is a snapshot OF USTs as of 705a:
… HERE is what this shop says be behind the price action overnight…
… WHILE YOU SLEPT Treasuries opened higher in Asia with Tokyo out on holiday, with interest seen in extension trades and flattening expressions from real$. The desk also saw some interest in the belly in early LDN, though the US front-end has gradually caught up in the past few hours despite EGBs sharply bull-flattening on an acute drop in the DAX (option expiry proximity & ECB’s Lagarde: ‘Animal spirits picking up more than care to say’). The Canadian CFIB business barometer at 7am also showed a large drop. SPX futures are showing -0.5%, Crude flat, Copper +0.5%, and DXY +0.5%. UST volumes are 90-percent.
… for somewhat MORE of the news you might be able to use … a few more curated links for your dining and dancing pleasure …
NEWSQUAWK US Market Open: European risk sentiment slips, USD firmer and Bonds bid post-FOMC … Bonds are bid post FOMC & as the tone deteriorates, Gilts lead on data & reports around the Spring Statement … USTs are firmer as the benchmark continues the dovish move seen after the Fed with particular focus on the slowing of the balance sheet run-off. Action overnight was contained on account of no Japanese trade, but once cash trade resumed the benchmark continued its climb and is currently at a 111-06+ session high with yields lower across the curve which itself is flattening.
Finviz (for everything else I might have overlooked …)
Moving from some of the news to some of THE VIEWS you might be able to use… here’s some of what Global Wall St is sayin’ …
First UP all things FOMC related …
20 March 2025 ABN AMRO: Fed Watch - Powell: 'Maybe I'll stay where I am' | Insights newsletter
The FOMC held rates in the 4.25-4.5% range and announced it will slow the pace of runoff of its securities holdings in April, by reducing the cap on Treasury redemption from $25 to $5 billion, while keeping the cap for MBS at $35 billion…
…In our preview we noted that we expected Powell to push back against the more aggressive easing priced by markets. By and large he did by providing a relatively hawkish narrative. He explained that the hard data remains solid. Looking ahead, he noted that inflation is expected to remain flat for the rest of the year, recession probabilities are still low, and that the link between consumer surveys and actual economic activity is weak, downplaying concerns. The Committee will be looking for signs of weakness, but 'the right thing to do now, is to wait for clarity' from the policies of this 'government by tweet,' as one journalist put it. This overall narrative is broadly consistent with our base case of the Fed holding rates steady indefinitely.
The FOMC stood pat on rates, with the median participant showing two 25 cuts this year amid downward revisions to growth and upward revisions to inflation. Powell was dovish, dismissing UMich's surge in long-run inflation expectations and describing transitory tariff price shocks as the "base case".
… The FOMC surprised us by announcing a slowdown in the pace of QT beginning next month. It plans to reduce the Treasury redemption cap from $25bn/mo to $5bn/mo while leaving the pace of MBS rolloffs unchanged. The Fed's cautious approach suggests that the duration of its tapering may be longer than merely a temporary slowing tied to the debt ceiling, despite the minutes from the January FOMC meeting. Instead, the Fed may prefer to keep QT running for longer at a slower pace than increase the caps after the debt ceiling is resolved only to fully stop a few months later.
Powell's dovishness reinforces our baseline projection that the FOMC will deliver two 25bp cuts this year, in June and September, despite high inflation. We expect three more in 2026, as before. We continue to expect tariff-related fallout, such as production disruptions, erosion in purchasing power, and policy uncertainty, to lead to a sharper GDP slowdown and a faster pickup in consumer prices than indicated by the median SEPs.
March 19, 2025 BMO FOMC: 50 bp of cuts this year, QT slowed to $5 bn TSY
The FOMC left policy rates unchanged, as expected. The dotplot also showed the longer-run rate steady at 3.00% -- although there had been some market participants anticipating an increase to 3.125%. The 50 bp of cuts for 2025 remains the messaging and that was very much in line with expectations. The language about the outlook being "roughly balanced" between the employment and inflation objective was replaced with "Uncertainty around the economic outlook has increased." The FOMC retained the language reiterating that "The Committee is attentive to the risks to both sides of its dual mandate." Fed Governor Waller dissented -- "Voting against this action was Christopher J. Waller, who supported no change for the federal funds target range but preferred to continue the current pace of decline in securities holdings." As for the balance sheet, "Beginning in April, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25 billion to $5 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion."
Even though the median 2025 dot was left unchanged, the distribution of projections shifted hawkishly. Only two dots made the difference between the median dot implying 50 bp and 25 bp of rate cuts by year-end. 17 of 19 policymakers see two or fewer rate cuts this year. 8 policymakers see one or zero cuts, with four officials in the no cuts camp. Nonetheless, the Treasury market rallied in the wake of the update -- but within a range and leaving rates simply unchanged on the day. From here, the market will be watching Powell's press conference for any further nuance that the Chair can offer.
The FOMC kept rates steady, incorporated tariff-related effects into its forecasts, and signaled that the current policy hold is likely to continue. We remain comfortable in our core view that the Fed will leave rates unchanged through year end.
We believe the FOMC is now following a loose version of the 2012-2014 “Evans rule,” where the decision to exit the current policy hold will be taken when specific macroeconomic thresholds are reached.
We revise our forecasts for tariffs and other Trump administration policies, and adjust our growth and inflation estimates to account for an earlier start to tariffs than projected in our December 2024 Global Outlook.
19 March 2025 DB: March FOMC recap: On hold while searching for a signal
The Fed held rates steady and repeated existing signals about the monetary policy outlook amidst considerable uncertainty. Though the dots drifted higher, the median continued to show an expectation of two rate cuts this year. For the near term, Chair Powell reiterated that policy is in a "good place" and that the Committee is in "no hurry" to adjust rates.
The Summary of Economic Projections reflected the effects of heightened uncertainty and the adverse supply shock of ongoing trade actions. Real GDP growth was cut 0.4 percentage points this year to 1.7%, while core PCE inflation was raised 0.3 percentage points to 2.8%, consistent with no further progress on inflation in 2025. Officials saw a clear shift in risks towards weaker growth and higher inflation as well. Powell described these revisions as broadly offsetting for the policy outlook.
The Fed did tweak QT, though they decided to slow rather than pause rundown. Beginning in April, the cap on Treasury runoff was slashed to $5bn per month (from $25bn), while MBS rundown was unchanged. Rather than tie this decision to debt ceiling dynamics, Powell indicated that it was in response to some signs of tightness in money markets and was consistent with their balance sheet principles.
On balance, we interpreted Powell's comments as leaning somewhat dovish, in contrast to the shift in the dots. Our long-standing view for the Fed expects the policy rate to remain on hold this year. However, a realization of downside risks to the economy, in the absence of a material increase in inflation expectations, could require the Fed to reduce rates in 2025. Like the Fed, we hope to get a better sense of the details around policies before deciding whether an adjustment is needed. The data and financial markets might not allow us (or the Fed) to be so patient.
While we got an adjustment to QT at today’s FOMC meeting, as expected, it was quite different than what we were looking for…
…On net, the adjustment in QT announced today means the balance sheet will be declining at a pace of only around $250bn per year. Taking into account the various considerations, we continue to anticipate that runoff will end in Q1 next year.
…During the press conference, Powell acknowledged that tariffs have brought uncertainty to the outlook, particularly as it relates to inflation. While it is unclear just how tariffs will ultimately be rolled out, for how long, and if/how countries will retaliate, consumers and businesses are already reacting with changes in activity. The incoming data is showing a weakening economic environment. For the time being, the Fed plans to wait patiently on the sideline and watch how this all plays out, and the markets will wait for them to signal when it is the next time to move.
We admit this is an incredibly difficult time to forecast. The remnants of COVID-era spending measures are still echoing through the system, and how the economy will progress in the short term if true progress is made in cutting the deficits is still to be seen. The era of easy everything is over, and while that may not be a welcome transition for many, it’s a necessary transition. As always, we will continue to watch the data, with an extra emphasis on the money supply as we forecast the path of inflation ahead. We welcome the shortterm pain of true change if it leads to the longer-term gains of faster growth and progress on the debt. Let’s hope the Fed is willing to accept that trade-off as well.
19 March 2025 ING US Federal Reserve seeks clarity as it leaves rates on hold
The Fed remains in no hurry to cut interest rates, but President Trump’s spending cuts and trade protectionist policies are hurting growth prospects and will likely force the central bank’s hand later in the year
19 March 2025 ING Rates Spark: Chair Powell takes the cross-winds in his stride
Chair Powell's comfort on inflation, and tariffs was notable – he was remarkably relaxed on it. Upbeat on growth, with some risks, but very relaxed on inflation. That's why the 2yr yield gapped below 4% and the 10yr yield got down to 4.25%, a marked bullish steepening net reaction. The QT wind-down is an issue too, as that means the Fed is now a solid net buyer
Fed on hold with unchanged SEP policy path; USTs rally after Chair Powell downplays tariff inflation risk; FOMC announces slowdown to QT pace; BoJ on hold; Swedish finance ministry raises inflation forecast; volatility in Turkey; DXY at 103.47 (+0.2%); US 10y at 4.243% (+4.0bp)
The FOMC keeps the fed funds target range at 4.25-4.50%, as expected; the Summary of Economic Projections (SEP) maintains the baseline projection of two 25bp cuts in 2025, while revising down growth expectations and raising inflation forecasts.
USTs bull-steepen after the Fed statement highlights that "uncertainty around the economic outlook has increased" and Chair Powell downplays the rise in inflation expectations, while noting that tariff inflationary impacts may be "transitory."
The FOMC announces that it will slow the pace of QT by reducing the monthly redemption cap on treasury securities to $5bn (P: $25bn) beginning in April; swap spreads widen slightly (2y: +0.3bp)…
The Fed made revisions to the outlook in similar spirit to our own (slower growth and stickier inflation). Powell said the Fed would balance upside risk to inflation and downside risk to growth by either keeping rates where they are, or easing to support activity.
Key expectations
The FOMC kept the target funds rate unchanged at 4.375%. The Fed reduced the maximum cap on Treasury runoff to $5bn (from $25bn), while leaving the cap on MBS at $35bn.
Powell repeated that policy was in a good place to respond to the changing outlook. He said the Fed is at a place where it can cut or it can hold. The Fed's easing bias remains in place.
We retain our call for a June rate cut on our favorable inflation forecast, though we view the bar as higher now than before. The Fed also appears comfortable letting the balance sheet shrink further.
Our rates strategists suggest investors stay positioned for lower yields via the UST 2s5s30s butterfly and remain positioned for a 25bp rate cut at the May FOMC meeting.
Our FX strategists continue to expect the USD to decline this year, and propose modifications to the
dollar smile framework to interpret global growth dynamics.
On agency MBS, our strategists remain neutral mortgages.
19 Mar 2025 NatWEST: March 18-19 FOMC meeting recap
Policy paralysis
No change in the target fed funds range (4.25-4.50%)
Limited changes to policy statement
Same dot plot medians as in Dec: 2 cuts in 2025 & 2026 & 1 cut in 2027
SEP: slightly higher inflation/lower GDP
Powell: No need to hurry “we are in greater position to wait for clarity”
The FOMC still signals that they are in no hurry to cut rates and made few changed to the dot plot. Increased risk of slower growth is matched by upside risks of inflation. The QT pace was reduced.
March 19, 2025 RBC: Uncertainty weighs on the Fed as they remain on pause
As was widely expected, the Fed held interest rates steady in its March meeting. The changes to Summary of Economic Projections (SEP) were notable as the growing uncertainty within the FOMC was apparent in the downgrades to the outlook in both 2025 and 2026 (RBC Economics also recently downgraded our US outlook).
What stood out within the SEP was the skew to their assessment of risks – the number of FOMC participants reporting higher uncertainty increased across every forecast, with 18 participants reporting downside risks to GDP growth in 2025 (vs 5 in December), 16 participants reporting upside risks to the unemployment rate in 2025 (vs 8 in December), and 18 participants reporting upside risks to core PCE inflation in 2025 (vs 15 in December).
While their forecast does not explicitly represent a shift towards a stagflationary outlook, the direction of risks is certainly pointing that way. Still, the Fed projections continued to show two cuts to the federal funds rate in 2025. When pressed on a justification for the downgrade to the economic outlook while making no changes to their interest rate forecast, Powell responded “It's really hard to know how this is going to work out.”
19 March 2025 UBS: FOMC worsening growth/inflation trade-off
FOMC signals two cuts this year still appropriate …Overall, the FOMC meeting statement was not much changed. Economic activity expanded at a “solid” pace and labor market conditions remained “solid,” consistent with Chair Powell’s description two weeks ago. A strike-through is shown below for more detail, as is an SEP mock-up.
The meeting materials reflect the worsening growth and inflation trade-off the FOMC faces. Although the front end is rallying on the unchanged median dots, despite FOMC participants marking growth down and the unemployment rate higher, in general the dots revised up, not down…
19 March 2025 UBS: Powell: policy well positioned for uncertainty
…Chair Powell's press conference, arguing growth is solid and the inflation can be looked through, seemed much more sanguine than the Summary of Economic Projections. In the SEP, the median core PCE inflation projection was revised up 0.3 pp to 2.8%, a fair bit from 2.0%, in 2025. The central tendencies for core and headline inflation revised up in all three years. Despite that, almost all FOMC participants see the risks to those projections weighted to the upside. Growth was revised down, and on top of the downward revision, almost all FOMC participants still see the risks to their growth outlooks weighted to the downside. With that worsening trade-off, the median dots may not have revised up, but for 2025 and 2026 the averages and the central tendencies did. To us, the SEP was not nearly as sanguine as the Chair's press conference…
…However, there were also some inconsistencies in the press conference today, and to be fair to the Chair, we agree the uncertainty is high. For example, he seemed to indicate that the economic projections revised, but there was inertia in the policy assumptions due to the uncertainty. Then, later in the press conference he seemed to indicate the downward revision to median projected GDP growth to 1.7%, one tenth below the longer run rate, about offset the upward revision to inflation, where core inflation was revised up from 2.5% to 2.8% in the median projections. That would contradict the argument that the lack of movement in the median was inertia. It may have just been math. The median dots were unchanged, though the general drift higher upon revision can be seen in the average dot revising up from a year-end 2025 funds rate of 3.84% in December to 4.00% in March. Chair Powell sounded like he, at least, had an unchanged dot, while he waits to see what happens — what happens to policy, to inflation, to hard data, to inflation expectations, and a lot of uncertain moving parts. Uncertainty was certainly a theme….
March 19, 2025 Wells Fargo: FOMC Keeps Rates on Hold Amid Increased Uncertainty
Summary
The FOMC voted unanimously today to keep its target range for the federal funds rate unchanged at 4.25%-4.50%. The Committee also decided to dial back the pace of quantitative tightening by allowing only $5 billion worth of Treasury securities to roll off the Fed's balance sheet every month.
In a change from the last post-meeting statement, today's statement noted that "uncertainty around the economic outlook has increased," an apparent reference to the uncertain outlook for U.S. trade policy and the effects it may have on the economy.
The median GDP growth forecast for this year in the Summary of Economic Projections was downgraded while the core PCE inflation forecast was pushed higher.
The median dot in the dot plot continues to look for 50 bps of rate cuts this year. However, there are now more FOMC members who think that less than 50 bps of easing would be appropriate than members looking for more than 50 bps of rate cuts.
We look for 75 bps of easing by the end of the year, which we acknowledge is not a view that is currently shared by most FOMC members.
If the economic slowdown that we forecast eventually leads the FOMC to place more weight on the "full employment" objective of its dual mandate than on its "price stability" objective, then we believe the Committee will ultimately conclude that lower rates are warranted and commence an easing cycle this summer.
Federal Reserve Chair Jerome Powell used the word "uncertainty" 16 times in his press conference today. We sympathize. At the outset, it's impossible to know what tariffs will be imposed by the US on April 2., on which countries, and for how long. When the specifics are revealed, it will still be difficult to forecast their impact on economic growth and inflation in the US and around the world. Another known unknown is the response of America's trading partners to reciprocal tariffs. Will they lead to negotiated reciprocal reductions in tariffs or to escalating retaliatory tariffs?
No wonder that the FOMC unanimously decided to leave the federal funds rate (FFR) unchanged at 4.25%-4.50%. Committee officials did revise their economic forecasts, however. They lowered their economic growth projections and raised their near-term unemployment and inflation expectations. The median projection of FOMC members was still two 25bps rate cuts this year, just as the futures market projects (chart). That's probably because tariffs are expected to lead to a one-time price increase while they (along with limited immigration) weigh on the growth outlook.
AND now for the rest of the (Global Wall St) story …
Best in show offering a recap of the day that was and arguably a hat-tip TO the FOMC and the word ‘called up from retirement’ …
March 19, 2025 BMO Close: Called up from Retirement
…At the press conference, Powell observed that, “inflation has started to move up. We think partly in response to tariffs. And there may be a delay in further progress over the course of this year.” Even with normalization still delayed, the Chair did go on to characterize the inflationary impact from tariffs as “transitory.” Admittedly, we were not anticipating that particular adjective to be called up from retirement so soon. To be fair, sometimes the label “temporary” just doesn’t precisely convey the message.
The outperformance of the front-end of the curve has triggered a debate. Did the Fed underdeliver on what was expected to be a hawkish response to the trade war? Or perhaps the bid is a classic policy error trade whereby investors view the Fed’s unwillingness to cut now – in light of the heightened uncertainties – as implying the Committee will need to do more later? There is an argument to be made that the 65 bp of cuts being priced in by year-end reflects a collective understanding that while the Fed would like to take its time before resuming normalization (perhaps just one cut this year), the realities of the trajectory of the economy could force the Fed to act more aggressively once the growth outlook dims more materially…
A few techAmentals showing downtrend in rates to resume … a look at 2s, 10s and bonds (I’ve only excerpted bit on 2s and bonds…prolly more than I should but…)
US 2y yields: We posted an outside day candlestick. Overall, we think that the short term uptick in yields could have come to an end, and that we could see a resumption in the broader downtrend.
US 2y yields We posted a bearish outside candlestick in US 2y yields, suggesting that we could see lowerr yields in the short term. This candlestick also comes off resistance at 4.07% (December low). We think we could see a move towards 3.85% (61.8% Fibonacci) in the short term.
We are closely watching the weekly slow stochastics indicator - IF we enter 'oversold' territory AND see a cross higher, it would be suggestive of a reversal higher in yields, and we have seen this play out twice in 2024.
Medium term, we retain our view that we will see lower yields, with a clear downtrend already set up (lower lows have already been achieved as we discussed in the past). The 55-200w MA setup is still in play, with a medium term indicated target at 3.42% (200w MA), which would be relatively near 3.55% (2023 low)
…US 30y yields: Yields have again turned lower after testing 4.68% (Nov 2024 high), after seeing an uptick like we had thought last week:
The turn lower now brings focus again to the 4.46%-4.49% (200d MA, 55w MA) support region. IF we see a weekly close below the 200d MA and 55w MA, it would be a significant level break and suggest a move lower in yields.
Here’s a note attempting to quantify / qualify first principles …
March 19, 2025 MS: US Public Policy & Global Economics: Tariffs: The Reciprocity Principle
The US is pursuing a policy of "reciprocal tariffs," setting expectations that on April 2 tariffs will be raised to levels that are equal to other countries' tariff, VAT, and non-tariff barriers treatment of US imports. We expect this will start a series of negotiations that result in higher tariffs, but less than implied by the US's stated reciprocity framework. Tariff increases that hew closely to product differentials may not materially affect our economic outlook, but more severe increases would further challenge our already below-consensus growth outlook.
The Federal Reserve left rates unchanged, as expected. Forecasts cut economic growth projections for the next three years, to a rate well below that of the each of the last four years. Inflation forecasts were pushed up. The media will rush to declare “stagflation”—but this is hardly the 1970s. Tariffs will raise inflation and then lower growth, so the pattern is not unexpected, and of course there is considerable uncertainty given erratic government policy.
US President Trump declared the Fed should be cutting rates in response to trade taxes. (There is a supportive argument—if policy focuses on the growth destruction of tax hikes rather than the price increases). The Fed is slowing the reduction of its balance sheet. This reflects the fact that liquidity demand is not slowing so aggressively, and should necessarily be seen as an easing…
… And from the Global Wall Street inbox TO the intertubes, a few curated links …
First up, an emergency when …
March 20, 2025 Apollo: Households Running Out of Emergency Funds
Data from the Fed shows that households’ ability to come up with $2,000 for an emergency expense within the next month is at the lowest level since the survey started in Q4 of 2015. Taking into account that the CPI level today is 35% higher than in 2015, the situation is even worse.
Here are a couple from The Terminal.com …
March 20, 2025 at 12:25 AM UTC Bloomberg: Powell Downplays Growing Risks, Sees Tariff Impact as Transitory
… and an OpED …
March 20, 2025 at 5:01 AM UTC Bloomberg: The Fed Is Clueless, Too. And That’s OK Like for everyone else, the impact of Trump’s tariffs isn’t yet clear.
…On the face of it, growing uncertainty, higher inflation expectations, and falling growth are pretty horrible. It adds up to a measure of stagflation. Yet markets reacted as if Powell had steered them toward more rate cuts. A surge in stocks greeted the initial announcement, while bond yields adjusted lower. Those moves gained momentum during Powell’s Q&A, although the stock market later gave up some gains:
Why? Any move to relax QT is welcome, and Powell has been interpreted as saying that the Fed wouldn’t hike if tariffs drove a rise in inflation. He even used the fateful word “transitory” to describe what happened after Trump 1.0’s tariffs. At the beginning of 2018, the administration imposed a levy on imports of washing machines, whose price had been declining for years. Tariffs turned that around. This is the official CPI data:
Powell perhaps unwisely rose to reporters’ bait and described the resulting inflation as “transitory,” but that does appear to be accurate for what happened on this specific occasion. After a while, prices fell again. If that experience repeats itselfon a larger scale in the months ahead, the Fed would be right to hold off on raising rates…
…One final point for the administration: Tariffs may be a useful tool in negotiations, but threats aren’t costless. Amping up the uncertainty has the real-world consequence of deterring people from taking risks. There are limits to how far trade policy can continue to be conducted this way.
Finally, one last link on FOMC
Mar 19, 2025 WolfST: Fed Sticks to Wait-and-See, Sees Only 2 Cuts in 2025, “Dot Plot” Shifts Hawkish amid Rising Inflation & “Uncertainties.” Slows Treasury QT, Maintains MBS QT
Dot plot shifts hawkish: 8 of 19 want see either no cut or just 1 cut in 2025.
The FOMC voted today to keep the Fed’s five policy rates unchanged, for the second meeting in a row, after cutting by 100 basis points in 2024. All participants agreed with the rate decision. But Christopher Waller dissented because he preferred to continue the current pace of QT.
Target range for the federal funds rate at 4.25-4.50%.
Interest it pays the banks on reserves at 4.40%.
Interest it pays on overnight Reverse Repos (ON RRPs) at 4.25%
Interest it charges on overnight Repos at 4.50%.
Interest it charges banks to borrow at the “Discount Window” at 4.50%.
And participants see only two cuts in 2025 as per the median projection in the “dot plot,” with a hawkish shift: four participants see no cut, and another four participants see only one cut.
The FOMC will slow QT. After outlining it in a series of communications, the FOMC provided details today:
It will slow the Treasury securities run-off to $5 billion a month starting April 1, from currently $25 billion a month.
It will let MBS continue to run off. The MBS runoff, which is not capped, has been around $15 billion a month.
The Fed has outlined the reasons for slowing QT in prior communications: It now sees a risk that the massive liquidity flows around debt-ceiling dynamics, which affect the liabilities on its balance sheet, will mess up the indicators it uses to determine if QT has sufficiently reduced the reserve balances on its balance sheet to be near “ample.” The Fed has already shed $2.2 trillion in assets since it started QT in July 2022…
