Fed Watch – 3/21/2025

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hi, I’m Lauren Saidel-Baker, and thank you so much for joining me for this March 21st episode of ITR Economics Fed Watch.

It’s been a big week for watching the Fed. We had the March meeting earlier this week, and as largely expected, there was no great move. Now, the exciting news for us economists is that we did get the new summary of economic projections, the new dot plot, so we can get a deeper glimpse into what Fed officials are thinking at the moment.

What was most interesting to me personally is that 11 of the 19 committee members still do expect at least two more rate cuts, that is 50 basis points of additional cuts this year. The market is pricing in still that next cut to come in the June meeting, but as always, we at ITR want to caution that inflation is the variable to watch.

We are doing a lot of work on inflation at the moment, especially as tariffs and other Trump administration policies could give us a little additional upside risk to inflation. Now, to be clear, we do expect inflation to start coming back in 2025 for very fundamental reasons, for non-policy driven reasons, but tariffs clearly could be an upside risk, and there’s a lot of talk right now about those pricing impacts of tariffs. Just how high will they be, and just when will we start to see them? Well, we’ll need a little more clarity on tariffs before we can finally pinpoint that impact, but for the near term, we are watching building pricing pressures.

Now, the other very interesting component of the Fed news this week is that they looked at new economic assumptions. The Fed outlook is calling for slightly higher inflation in 2025 than they have given in their December meeting. So to say that inflation is fully under control, I think is a little bit premature and Fed officials are echoing that message. They seem a little more comfortable at the moment with this pace of inflation. Again, it is still disinflationary, but those risk factors to watch, what we’ve been talking about for several months now, those factors are still very much on the table.

What this means for you is that we’re probably close to the low of interest rates this business cycle. If you need to do any borrowing, any refinancing, I wouldn’t wait too long. I wouldn’t really wait out those last, if it is 50 basis points likely to be less if we don’t go to the full 50. But at this point, are we splitting hairs looking for that exact low in the cycle? Demand is really coming back, especially in the second half of 2025. So you’ll want to be ready ahead of time.

Don’t pinpoint that low. Timing a market is never good sound business advice, but as always, watch the leading indicators. Know what’s coming for your market specifically. And until then, we will keep watching the Fed for you.

Thank you so much for joining me today. You’ll see my colleague, Eric, next week, and we hope you’ll stick with us here at ITR Fed Watch. Thanks.