What to watch at the Fed meeting.

A young go down of economical projections testament give the clearest sense to date of how officials think President Trump’s agenda will impact the economy.

8

%

Federal funds

target rate

6

No change

expected

4

RECESSIONS

2

0

2000

’05

’10

’15

’20

’25

20

%

18

Federal funds

target rate

16

14

12

RECESSIONS

10

8

6

No change

expected

4

2

0

1970

’75

’80

’85

’90

’95

2000

’05

’10

’15

’20

’25

20

%

18

Federal funds

target rate

16

14

12

RECESSIONS

10

8

6

4

No change

expected

2

0

1970

’75

’80

’85

’90

’95

2000

’05

’10

’15

’20

’25

20

%

18

Federal funds

target rate

16

14

12

RECESSIONS

10

8

6

No change

4

expected

2

0

1970

’75

’80

’85

’90

’95

2000

’05

’10

’15

’20

’25

Note: The rate since December 2008 is the midpoint of the federal funds target range.

Source: Federal Reserve

By Karl Russell

Colby Smith

The Federal Reserve is set to extend its pause on interest rate cuts on Wednesday as President Trump’s aggressive approach to tariffs and other economic policies fuel extreme uncertainty about the outlook for inflation, growth and unemployment.

A decision to stand pat would keep interest rates at 4.25 percent to 4.5 percent, a level that was reached in December after a series of cuts in the second half of 2024. The Fed will release its latest policy statement at 2 p.m. In Washington, after which Jerome H. Powell, the Fed chair, will hold a news conference.

Officials at the Fed are in wait-and-see mode, closely tracking the incoming data for signs that progress on inflation is picking back up after a period of stalling out, or that an otherwise solid labor market is starting to crack. What they also want is greater clarity on what exactly Mr. Trump has in store for the economy after a whirlwind of tariff announcements, government spending cuts and deportations.

Here is what to watch for on Wednesday.

The dot plot: With the Fed’s pause well telegraphed, perhaps the most important part of the March meeting will come in the form of the central bank’s new “dot plot.” Released quarterly, it tracks what officials expect will happen with interest rates. The last time the dot plot was updated, in December, officials broadly expected two interest rate cuts this year, or a reduction of half a percentage point. That was significantly less than what was predicted in September, when officials saw a full percentage point decline.

How many cuts? Some economists are bracing for expectations to be scaled back again, with officials signaling just one cut this year. Others think policymakers will stick with two cuts even as they raise their forecasts for inflation and lower those for growth because of Mr. Trump’s policies. For next year, financial markets are pinning their hopes that there will be at least two rate cuts as a weakening economy prompts the Fed to take action.

The Trump factor: Officials are most focused on the net effect of the president’s plans, meaning they are not looking at any one policy individually but taking stock of how each interacts with and potentially offsets another. But given the extent of Mr. Trump’s tariff threats and what he has imposed so far on the country’s biggest trading partners, the global trade war has taken center stage in debates about the economy’s trajectory.

A new tariff playbook? The big question for the Fed is whether it will use a playbook that policymakers employed during the central bank’s last brush with large-scale tariffs in 2019, during the first Trump administration. Back then, the central bank ended up lowering interest rates by 0.75 percentage points as a form of insurance against mounting concerns about growth. Inflation at the time was subdued, giving officials flexibility to look past any temporary rise in consumer prices. The Fed does not appear to have that luxury this time around. The tariffs Mr. Trump has put on the table are far more aggressive and could lead to far higher prices for imports along with slowing exports as other countries retaliate. Inflation, meanwhile, is still uncomfortably high.

“Look through it”: At an event this month, Mr. Powell began to sketch out how the Fed would approach the tariff situation. “In a simple case where we know it’s a one-time thing, the textbook would say look through it,” he said, referring to a situation in which the Fed would not respond to a tariff-related price rise. But a “series” of bigger shocks when inflation is not yet under control could change that calculus, Mr. Powell warned at the University of Chicago Booth School of Business event.

Balance sheet calculations. The Fed’s March meeting could bring about changes to another important instrument in the central bank’s tool kit: the balance sheet. At the last meeting in January, policymakers and their staff discussed the possibility of either slowing or pausing the reduction of the Fed’s roughly $6.8 trillion portfolio of government-backed securities. The reason is to avoid amplifying market gyrations tied to an ongoing standoff over the debt ceiling, which caps how much money the government can borrow.

Will the debt limit fight be a factor? The Treasury Department is using what it calls “extraordinary measures” to stay below the debt limit. Eventually those measures will be exhausted, meaning Congress will have to raise the debt ceiling. The Fed has been shrinking its holdings since the middle of 2022 and last May, the central bank slowed its pace of allowing maturing securities to roll off. The Fed is trying to avoid a situation in which the amount of cash flowing in the banking system falls too low and causes short-term disruptions in funding markets, as was the case in September 2019.

Colby Smith

With the Fed widely expected to extend its pause on interest rate cuts, most of the attention at 2 p.m. Will be on the new set of projections released by the central bank, which show how all 19 officials are thinking about the trajectory for interest rates, inflation, growth and unemployment. The last time these forecasts were updated, in December, most officials predicted two cuts this year, for a total half-percentage point reduction in borrowing costs. That was half of what they thought in September and reflected their expectation that inflation would end 2025 higher than initially thought.

Colby Smith

Some economists expect officials to scale back the number of rate cuts to just one this year, as they pencil in the prospects of higher inflation. Others think most will stick with two cuts for the year in recognition of a weakening outlook for growth.

Tony Romm

President Trump has never been shy about criticizing the Federal Reserve, frequently seeking to pressure the nation’s central bank into reducing interest rates more swiftly.

“Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!!,” Mr. Trump posted on Truth Social last month, adding: “Lets Rock and Roll, America!!!”

But the Fed is expected to see things differently on Wednesday — choosing to hold rates steady in the face of rising prices and slowing growth — in a move that seems destined to stoke Mr. Trump’s anger.

At the heart of the tension are Mr. Trump’s tariffs, which he has promised to apply more expansively beginning April 2. The White House contends its protectionist policies can rejuvenate American manufacturing and reduce the country’s reliance on imports, but economists believe that Mr. Trump risks touching off a protracted global trade war that will badly harm the U.S. Economy.

The latest dour projection arrived Tuesday, when Fitch Ratings cut its U.S. Growth forecast for this year to 1.7 percent from 2.1 percent. It explicitly pointed to Mr. Trump’s tariffs — and the “huge uncertainty” around them — as two of the drivers behind a potential economic slowdown and short-term rise in prices.

The uncertainty is likely to freeze any rate cutting at the Fed, perhaps straining an already tortured relationship between Mr. Trump and Jerome H. Powell, the man he handpicked to serve as chair of the central bank in 2017.

In his first term, the president described Mr. Powell as the “enemy,” and blasted his colleagues as “boneheads,” in a bid to browbeat the Fed into slashing interest rates. Mr. Trump at one point even considered firing Mr. Powell, raising fears that the White House might try to undermine the Fed’s political independence.

Soon after returning to the White House, the president revived his attacks: He said, again, that he would “demand that interest rates drop immediately,” and one of his leading advisers — the tech billionaire Elon Musk — signaled support for an audit of the central bank. When the Fed chose to hold rates steady at its last meeting, Mr. Trump charged anew that Mr. Powell and the Fed had “failed to stop the problem they created with inflation.”

“If the Fed had spent less time on DEI, gender ideology, ‘green’ energy, and fake climate change, Inflation would never have been a problem,” Mr. Trump wrote in a post on Truth Social.

Colby Smith

Federal Reserve officials are scheduled to release their first set of economic projections this year, alongside their interest rate decision, on Wednesday. Those forecasts will offer a fresh glimpse of the trajectory for monetary policy at a highly uncertain moment for the central bank.

Policymakers paused interest rate cuts in January after reducing borrowing costs by a percentage point in the latter half of last year. They are expected to again stand pat on Wednesday as they await greater clarity on how far President Trump will push his global trade war and to what extent he will follow through on other central aspects of his agenda, including slashing government spending and deporting migrants.

The big question now is when — and to some extent whether — the Fed will be able to restart cuts this year.

When the Fed last released quarterly economic projections in December, officials penciled in two rate cuts that would reduce borrowing costs by half a percentage point in 2025. But economists now expect Mr. Trump’s policies to lead to more intense price pressures and slower growth, a tough dynamic for the central bank and one that could prompt policymakers to scale back how many cuts they project going forward.

Here’s what could change and how to interpret those updates.

When the central bank releases its Summary of Economic Projections each quarter, Fed watchers focus on one part in particular: the dot plot.

The dot plot will show Fed policymakers’ estimates for interest rates through 2027 and over the longer run. The forecasts are represented by dots arranged along a vertical scale — one dot for each of the central bank’s 19 officials.

Economists closely watch how the dots are shifting, because that can give a hint about where policy is heading. They fixate most intently on the middle, or median, dot. That is regularly quoted as the clearest estimate of where the central bank sees interest rates going over a given time period.

The central bank is trying to achieve two things when it sets policy: low, stable inflation and a healthy labor market.

When it perceives elevated inflation to be a concern, it raises interest rates to make borrowing money more expensive, which cools the economy. By taking steam out of the housing and labor markets — as it did between March 2022 and July 2023 — higher rates helped to weaken demand and made it harder for companies to raise prices without losing customers, eventually weighing on inflation.

With inflation more in check, officials began cutting rates in September, kicking off with a big half-percentage-point reduction. At the time, the Fed’s chair, Jerome H. Powell, billed it as a move that would help to safeguard a strong economy, rather than a panicky response to unexpected weakness. The Fed lowered interest rates twice more in 2024, bringing them down to the current level of 4.25 percent to 4.5 percent.

Based on shifting perceptions about the risks around inflation and growth, economists broadly expect officials to pencil in either one or two quarter-point cuts for this year.

When reading the dot plot, it’s important to pay attention to where interest rate estimates fall in relation to the longer-run median projection. That number is sometimes called the “natural” or “neutral” rate. It represents the theoretical dividing line between monetary policy that is set to speed up the economy versus a policy meant to slow it down.

The neutral estimate has steadily ticked higher in the past year and in December stood at 3 percent.

At the last meeting, Mr. Powell described rates at their current level as “meaningfully restrictive,” suggesting the Fed sees its policy settings as continuing to weigh on the economy and helping to bring down inflation. Economists will be watching whether the chair changes his tune on that point. If he suggests that rates are no longer as restrictive, it could mean the Fed now sees less capacity to lower rates with inflation still too high.

Price pressures have eased significantly since peaking in 2022, but inflation overall has yet to return to the Fed’s 2 percent target. Progress toward that goal has been very bumpy in recent months, and with Mr. Trump seemingly committed to an aggressive tariff regime, there is increased concern about this progress could get thrown even further off course.

Fed officials moved their estimates for inflation sharply higher in December, with some already starting to layer in assumptions about what to expect from another Trump administration at that point. Back then, the majority expected the core personal consumption expenditures price index — which strips out volatile food and energy items and is the Fed’s preferred gauge — to hover at 2.8 percent by the end of the year. As of January, it stood at 2.6 percent.

Policymakers could raise those estimates again on Wednesday given the scope and scale of Mr. Trump’s plans to date.

Economists and policymakers broadly agree that tariffs lead to higher consumer prices, but whether those increases lead to persistently higher inflation is not entirely clear. Much will depend on how extensive the tariffs end up being, how long they are kept in place and ultimately how businesses and consumers respond.

As much as economists and policymakers are worried about resurgent inflation, they are also concerned about growth, despite the labor market having been much more resilient than expected despite soaring inflation and elevated interest rates.

In December, Fed officials expected the economy to grow 2.1 percent this year, a more moderate pace than 2024 but still a healthy clip. They also expected the unemployment rate to steady around 4.3 percent, 0.2 percentage point higher than its level as of February.

Estimates pertaining to growth are likely to be lowered in the latest set of projections, while unemployment forecasts could rise as officials factor in Mr. Trump’s plans to cull the federal work force and cut spending more broadly.

Americans’ feelings about the economy have already significantly soured on fears that all of the uncertainty surrounding Mr. Trump’s trade policy will also lead businesses to halt investment and hiring. Still, most economists do not expect a recession, given the economy’s strong foundation.

Joe Rennison

The stock market has fallen fast over the past month. Business and consumer sentiment is souring, and investors are afraid that economic data will soon start to show deeper cracks.

The question on Wednesday: Will the Federal Reserve also express concern about the path ahead?

So far, Fed officials have largely avoided commenting on an uncertain outlook while current economic data remain solid. A healthy labor market has allowed the central bank to continue to point to economic resilience as it holds interest rates high in response to stubborn inflation.

But in addition to announcing its decision on interest rates at its monthly meeting on Wednesday, the Fed will publish officials’ first economic projections since December.

“Since then, the U.S. Economic environment has changed dramatically,” said Matt Colyar, an economist at Moody’s Analytics.

Trump administration officials have largely brushed off investors’ concerns, saying that the economy remains on sound footing and that a modest pullback from recent stock market highs is nothing to worry about. The S&P 500 briefly entered a correction last week after four straight weeks of losses. The index is 8.6 percent lower than its record high last month, and down more than 4 percent so far this year.

Source: FactSet

By The New York Times

Treasury Secretary Scott Bessent recently suggested that earlier proposals by the government to introduce hard-line tariffs on trading partners were likely to be softened as negotiations progressed, and that this could offer a tailwind for the stock market.

Investors are squarely focused on whether the economy can withstand the current period of fading growth expectations and rising recession worries, at least until more business-friendly policies like tax cuts and deregulation are settled on and there is more certainty around tariffs.

At the beginning of March, investors expected the Fed to next cut interest rates in June, based on prices in interest rate futures markets. As of Tuesday, those expectations had been pushed back six weeks to July.

But certain interest rates have started to come down even without Fed action. As growth worries have mounted, longer-dated market interest rates have fallen, making things like mortgages and auto loans cheaper.

In effect, this decline is doing some of the same job that the Fed’s cutting interest rates would do and is buying the central bank some time while inflation remains sticky.

Lower interest rates are typically seen as being beneficial for the stock market, but the recent decline in rates has not helped lift companies’ share prices

When rates fall because of fundamental concerns about the economy, the forecast for the companies in the stock market is also gloomy and their valuations typically fall.

The clouds have been gathering over corporate America. Chief executives from businesses like Delta Air Lines, Dollar General and Macy’s are warning that consumers have begun to struggle.

And retail sales in February were lower than expected, with January’s preliminary figure revised down in the latest data.

The Federal Reserve Bank of Atlanta’s growth forecast for the first quarter is currently minus 2.4 percent.

The U.S. Dollar is 4 percent lower just in March, on course for its worst month since November 2022. As the dollar weakens, the impact of President Trump’s tariffs on domestic companies and consumers intensifies. Investors have sought out the safety of gold, which rose past $3,000 per troy ounce this week for the first time.

Foreign investors have already begun to pivot away from U.S. Markets. Analysts at Bank of America said their latest global survey of fund managers showed a sharp drop in the rosy expectations that they had started the year with, but not yet to the point that they were expecting a recession, even though worries over a possible downturn had risen. Analysts labeled the current sentiment a “bull crash.”

Should Fed officials signal on Wednesday that they are becoming more concerned about the economy and that the “dot plot” of interest rate forecasts suggests deeper cuts than investors expect, the stock market could fall even further.

Futures on the S&P 500, which give investors the ability to trade before exchanges officially open, pointed to a modest rise on Wednesday, paring some of its 1 percent slide on Tuesday.

“The Fed seems committed to sitting on its hands for the time being, but the dot plot will force them to ‘guesstimate’ whether they’ll cut rates this year and by how much,” said Kristina Hooper, chief market strategist at Invesco. “With so much up in the air, it’ll be interesting to see their expectations.”

Mr. Colyar at Moody’s is among those who expect the Fed to hold interest rates steady until the second half of the year, when he expects the mounting tariff war to have slowed growth to the point that the central bank takes action.

“The timing for those moves will inch closer if the economy starts flashing red,” he added.

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