U.S. Desk Strategy Market Views

We expect the Fed to keep rates on hold at its March meeting, while ironing out details regarding when and how to taper the QT process. Notably, the second Fed meeting of 2024 (a quarterly) comes with updated SEP forecasts for the Fed Funds Rate as well as growth and inflation views.

The potential scenarios for the March FOMC meeting include:

• Very Hawkish Hold (5%): We note that it would only take two forecasters to shift up 2024 dots, resulting in a move from three to two cuts. If Powell focuses on a “higher for longer” message, we would expect a major selloff across all assets combined with a USD rally.
• Slightly Hawkish Hold (25%): This scenario would also see the median 2024 dot move to only two cuts (as per above), though Powell could say “ignore the dots” and suggests that more easing is likely via the press conference. Markets would likely sell off upon seeing a higher median dot for 2024 at 2pm, and then rally back after Powell’s clarification.
• Base-Case: Neutral Hold (50%): Our base case is for the Fed to remain on hold while continuing to signal three cuts for 2024. We expect Powell to stress data dependence along with a higher inflation forecast, but still signal a maximum of 75 bps of cuts this year. Given price action hedging into the FOMC, this scenario would likely see markets rebound.
• Dovish Hold (20%): In this scenario, the 2024 median dot stays at three cuts, and with an unchanged inflation forecast. A dovish hold in March likely includes an announcement regarding QT tapering in March, instead of waiting to May or June. In this case, we would expect the curve to bull steepen with strong risk-on sentiment across all asset classes.

Please see the attached PDF for the full write-up with charts and scenarios…