Fed Meeting Preview: Is A March Rate Cut Likely?

There’s little doubt that the Federal Reserve Open Market Committee (FOMC) meeting this Wednesday will opt to maintain interest rates unchanged within the 5.25% to 5.5% range while also keeping their quantitative tightening program running at the same pace.

But, the real focus lies in the million-dollar question of what the Fed’s next move will be, particularly in March, and whether they are comfortable with the aggressive rate cuts that market participants are anticipating.

Markets are placing a 50% chance of a rate cut as soon as March, and they factor in six cumulative rate cuts of 25 basis points each by the end of the year, according to CME Group FedWatch tool.

The S&P 500 Index, monitored through the SPDR S&P 500 ETF Trust (NYSE:SPY), is approaching this crucial event while trading at fresh record highs amid speculations of rate cuts.

All eyes will be on Federal Reserve Chair Jerome Powell’s upcoming press conference at 2:30 p.m. ET on Wednesday, where hopefully the public will gain deeper insights into the Fed’s outlook on interest rates.

Ahead of January’s FOMC meeting, here’s how market participants and economists are evaluating the possible scenarios that could unfold.

Economic Strength Gives Powell Leeway To Hold For Longer

Stock market analyst Ed Yardeni anticipates there won’t be any adjustments to the federal funds rate during the upcoming meeting. Powell is expected to counter the market’s inclination toward earlier rate cuts by pointing out that financial conditions have improved and the economy has demonstrated greater strength than initially projected, partly due to increased productivity.

The U.S. GDP grew by 3.3% in the fourth quarter of 2023, sharply outpacing forecasts of a 2% growth. However, the Fed’s preferred inflation gauge came in slightly below expectations in December, pushing several economists to project upcoming rate cuts.

According to ING Group’s analysis, a March interest rate cut is unlikely due to strong economic growth and a tight job market.

But the Dutch banking and financial services company anticipates the Federal Reserve will eventually implement significant interest rate cuts at a later stage. The company believes the Fed will opt to wait until May before making its first move in this direction.

The basis for this…