Signs of a have started to emerge, and in the current environment of financial market jitters, the Fed officials must also be aware of this. Therefore, the core contradiction in the March FOMC meeting is that policymakers need to balance "slowing growth" and "persistent inflation" as well as whether to pre-empt the "Trump uncertainty".
If the meeting signals include "lower inflation tolerance + later rate cuts" and ignores the chaos caused by Trump's fiscal and tariff policies, this will drive down US Treasuries, US stocks and , and strengthen the US dollar in the short term; (Of course, I think the probability of gathering all these hawkish elements is very low)
On the contrary, if the Federal Reserve believes that the current inflation is driven by temporary factors (such as tariffs, supply chains), or believes that the risk of economic recession is greater than the risk of inflation, and therefore tolerates inflation temporarily above the 2% target, or triggers earlier rate cut expectations, then it will be positive for risk assets.
In addition, if the Fed is overly concerned about economic growth, even if there are easing expectations, it may also cause short-term panic in the market, with temporary or disorderly volatility.
The following are the specific points that need attention:
c 1. Interest Rate Decision and Policy Stance
Whether to maintain interest rates unchanged:
All institutions unanimously expect the Federal Reserve to maintain the federal funds rate target range at 4.25%-4.50%, continuing the "no rush to act" stance, and there should be no surprises here. If there is a surprise, just with your eyes closed.
Policy Statement Rhetoric:
Pay attention to whether the statement adjusts its assessment of economic growth, inflation, and risk balance (such as shifting from "strong growth" to "moderate slowdown"), and whether it retains
fiop[ f still emphasizes a tight labor market.
If the statement emphasizes the persistence of inflation, it may suppress risk assets; if it downplays the risk of inflation growth, it may boost the stock and crypto markets.
2. Economic Forecast Adjustment (SEP)
Growth and Unemployment Rate:
Wall Street expects the Federal Reserve officials to slightly lower the 2025 GDP growth rate (from 2.1% to 2.0%), reflecting the drag of trade policy and slowing consumption, with the unemployment rate remaining low (4.3%).
Inflation Path:
The previous forecast for core PCE inflation was 2.5%, and if officials consider the pass-through of tariffs and wage stickiness, they may revise it upward, which is a bad signal.
It is also necessary to observe whether long-term inflation expectations are "unanchored" (such as the latest warning from the University of Michigan that inflation expectations have jumped to 3.9%).
Market Impact:
If the downward revision of GDP growth and the upward revision of core PCE inflation forecasts materialize, it represents a rise in stagflation expectations, which may suppress risk assets and benefit gold.
3. Dot Plot's Dovish Signal
Median Number of Rate Cuts in 2025:
The current market expectation is for two cuts (25bp each), and it needs to be observed whether it is maintained, reduced (one cut), or increased (three cuts).
Long-term Neutral Rate (r*):
If it is believed that trade policy has pushed up supply-side costs, it may lead to an upward revision of r*, implying less room for rate cuts.
Dispersion of Committee Members:
Pay attention to the degree of dispersion in the dot plot distribution, and if the 2025 forecast is concentrated on 1-3 rate cuts, the uncertainty about the policy path will be higher.
Market Impact:
Signals of stagflation have already emerged, so the core of this dot plot is to verify the Federal Reserve's tolerance for the "stagflation" risk.
If the dot plot implies fewer rate cuts (1 cut), the short-end yield will jump, which is negative for risk assets; if there are more rate cuts (3 cuts), it will boost risk appetite.
If the dot plot shows more rate cuts, it needs to be verified whether the core PCE forecast is also lowered simultaneously (the previous forecast was 2.8%). Contradictory signals (more rate cuts + higher inflation) will cause market chaos.
4. Adjustments to the Quantitative Tightening (QT) Plan
Pace of Balance Sheet Reduction:
Adjustments to QT may include slowing the pace of balance sheet reduction or pausing the runoff of MBS (currently $35 billion per month).
Reinvestment Strategy:
Pay attention to whether the MBS paydown funds are reinvested proportionally in Treasuries (neutral strategy) or skewed towards short-term bills, which may exacerbate short-end distortions, especially as the debt ceiling has led to a reduction in bills issuance. If the reinvestment is tilted towards neutral or long-dated bonds, it may suppress long-end yields, relieving term premium pressures, which would be an additional positive.
Market Impact:
This may be the potentially biggest positive from this meeting, as a clear QT end timeline or relief of market liquidity pressure expectations could boost risk asset rebounds.
5. Trade Policy and Inflation Risks
Assessment of Tariff Impacts:
Whether the Federal Reserve mentions in the statement or press conference the two-way impact of trade policy uncertainty on growth and inflation (some institutions estimate that tariffs may push up core PCE by 0.5pp).
Whether it implies concerns about "stagflation" risks (the market has priced in a recession, but the Federal Reserve is more focused on inflation).
If inflation expectations spiral out of control, whether it releases a hawkish signal of "necessary rate hikes" (low probability, but needs to be watched).
Market Impact:
If the Fed emphasizes the persistence of inflation, the rise in real interest rates will suppress gold; if it acknowledges stagflation, risk assets will be sold off. If inflation is under control, it will be a wait-and-see approach.
6. Debt Ceiling and Fiscal Policy Risks
Government Shutdown Risk:
The debt ceiling impasse remains unresolved, and it is worth noting whether the Federal Reserve hints at liquidity support measures (such as adjusting the SRF tool) in advance, which would be a positive signal.
Fiscal Drag:
Whether the impact of government spending cuts on economic growth has been incorporated into the SEP forecast (e.g., federal layoffs dragging on employment).
Market Impact:
The market impact here may be a bit tricky. Generally speaking, if the Fed is very concerned about the chaos in the Treasury market and pessimistic about economic growth expectations, the market may panic and sell off initially, and then attention may return to the Fed's easing expectations. So if this happens, the market may not find direction and experience disorderly and volatile swings in the short term.
