No Rate Cut Expected in March, But May Could Be in Play

The Federal Open Market Committee (FOMC), the policy-making arm of the Federal Reserve, is widely expected to leave interest rates unchanged at its next meeting on March 19. According to the CME FedWatch Tool, which tracks market expectations, there is only a 3% chance of a rate cut at this meeting. This aligns with recent comments from Federal Reserve Chair Jerome Powell, who emphasized that while progress has been made in reducing inflation, price levels remain slightly above the Fed’s 2% target. Powell also highlighted the strength of the labor market, noting that it is "solid and broadly in balance." With inflation still above target and the job market in a healthy state, the FOMC is unlikely to feel pressured to lower rates in March.

However, the possibility of a rate cut in May is still on the table. Markets currently assign a roughly 40% chance of a cut at the May 7 meeting, reflecting ongoing uncertainty about the economic outlook. This uncertainty stems in part from factors such as tariffs and government spending cuts, which have introduced risks of a potential recession. While the FOMC typically avoids surprising markets with unexpected moves, a significant deterioration in economic conditions before the March meeting could theoretically prompt a rate cut. For now, though, the odds of such a move remain low.

A May Rate Cut: What’s Driving the Possibility?

The likelihood of a rate cut in May hinges on two key factors: inflation trends and the FOMC’s broader assessment of the economy. First, upcoming inflation reports could signal whether price pressures are easing. If the Consumer Price Index (CPI) data for March and April shows a cooling trend, it could strengthen the case for a rate cut. Second, the FOMC may act if it becomes increasingly concerned about the overall health of the economy. Chair Powell’s recent remarks suggest a slightly less optimistic tone on the U.S. economic outlook, which could indicate that policymakers are starting to lean toward a more dovish stance.

Much will depend on the economic data released in the coming weeks. Key reports include the CPI on March 12 and April 10, as well as the Employment Situation Reports on April 4 and May 2. These reports will provide critical insights into whether inflation is moving closer to the Fed’s target and whether the labor market remains resilient. If the data points to weakening economic momentum, the FOMC may feel compelled to act. On the other hand, if the economy continues to perform well, the case for a rate cut could weaken.

What to Watch at the March Meeting

While no rate cut is expected in March, the FOMC’s meeting will still be closely watched for clues about future policy direction. One key area of focus will be the Summary of Economic Projections (SEP), which the FOMC updates at alternating meetings. In December, policymakers forecast an average of two interest rate cuts in 2025, with some officials anticipating deeper reductions. Markets now believe that three cuts may be more likely, and if the FOMC’s updated projections signal greater expectations for easing in 2025, it could increase the odds of a May rate cut.

Another important aspect to monitor is the language in the FOMC’s post-meeting statement. In January, the statement noted that "recent indicators suggest that economic activity has continued to expand at a solid pace," with low unemployment and "somewhat elevated" inflation. Any changes to this language could provide hints about the FOMC’s confidence in the economy. For example, if the statement expresses less certainty about growth or labor market strength, it could signal that policymakers are leaning toward a rate cut in the near future. Additionally, the FOMC may revise its assessment of risks to the economic outlook, which was last described as "roughly in balance" in January.

Powell’s Press Conference: A Key Event

Chair Powell’s press conference following the March 19 meeting will also be a focal point for markets. Powell’s comments often provide additional color on the FOMC’s thinking and can shift expectations about future policy moves. While the March meeting itself is unlikely to result in a rate cut, Powell’s remarks could help clarify whether the FOMC is leaning toward a May cut or maintaining a wait-and-see approach. Markets will be listening closely for any signals about the Fed’s appetite for easing monetary policy in the coming months.

Key Takeaways: No March Cut, but May Remains a Possibility

In summary, the FOMC is not expected to cut interest rates at its March 19 meeting, but the door remains open for a potential rate cut in May. The likelihood of such a move will depend on upcoming economic data, particularly inflation and employment reports, as well as the tone of the FOMC’s communications. While the labor market remains strong and inflation is only slightly above target, growing concerns about the economic outlook could push the FOMC toward a more dovish policy stance. For now, markets are pricing in a 40% chance of a May cut, with the potential for this probability to shift as new data emerges. The FOMC’s March meeting will be an important milestone in shaping expectations for what comes next.