Federal Reserve Preview: No Imminent Pressure, But Downside Growth Risks Point To H2 Rate Cuts

2025-03-17 18:09:00 ET

Summary

• After 100bp of interest rate cuts in late 2024, Chair Powell suggests that the Fed aren’t in a hurry to ease policy further and a no change outcome is widely expected on 19 March.
• President Trump’s spending cuts and trade protectionist policies are hurting growth prospects and will likely force the central bank’s hand in the second half of 2025.
• Softer US activity and this year's 50bp dovish re-pricing in the 2025 Fed easing cycle have been major driving factors in the EUR/USD rally.

By Chris Turner , Padhraic Garvey, CFA , & James Knightley

The economy isn't living up to expectations

At the start of the year, there was plenty of optimism around. The economy was in decent shape, and the expectation was that President Trump would come in and turbo charge the growth story with tax cuts and deregulation. When combined with potentially inflation-boosting tariffs and immigration controls markets sensed the Federal Reserve would have less scope to cut rates. As recently as 12 February financial markets were pricing only one 25bp interest rate cut for the year ahead....

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