Steady on rates but tweak on QT opens door to cuts
With uncertainty in the air the Fed leaned dovish (and broader markets liked it)
- As expected, FOMC kept rates unchanged (at a range of 4.25-4.50%) at its March meeting, the second pause at levels still higher than neutral.
- The major announcement was regarding QT: Starting in April, the Fed will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25B to $5B, while maintaining the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion. The Fed views this as a slowing down to elongate the QT process versus calling for a pause.
- Overall they largely delivered on what we laid out in our preview, with a neutral to slightly-dovish leaning update to SEP forecasts, reduced QT and signaled that greater uncertainty will impact growth ahead.
- Further afield, with QT tweak behind us, rate cuts can start as early as June. We maintain our view the Fed will deliver at least 2 cuts in 2025.
