- MON: N/A
- TUE: N/A
- WED: FOMC Minutes
- THU: US CPI (Mar)
- FRI: UK GDP (Feb), US PPI (Mar), US UoM Prelim (Apr), US Earnings Season (Q1 25)
FOMC MINUTES (WED): At its March meeting, the Fed kept rates unchanged, as expected, and maintained its forecast of two rate reductions in 2025. It removed language from its statement suggesting risks to its goals were balanced, citing increased uncertainty. However, it reiterated that "economic activity has continued to expand at a solid pace," labour market conditions "remain solid,", and inflation "remains somewhat elevated."
However, it did add that “uncertainty around the economic outlook has increased.” Its 2025 and 2026 growth projections were lowered, with higher unemployment, and it lifted its PCE inflation forecasts. It also announced that starting in April, the pace of balance sheet runoff will slow, reducing the monthly Treasury redemption cap to USD 5bln (from the current USD 25bln), though the MBS cap remains unchanged at USD 35bln.
Analysts were not very surprised by the announcement, given that the use of its reverse repo facility has declined significantly this year. The prior meeting minutes also alluded to a slowdown of the balance sheet runoff, although the March meeting was not explicitly signalled by policymakers.
The projections also showed that FOMC members are divided on the number of cuts in 2025; the dot plot continues to show two rate cuts this year, and projections for 2026 and the long-term forecast were left unchanged, but four participants now expect rates to be unchanged in 2025 (vs just one previously), and four members expect only one rate cut.
In his press conference, Chair Powell stressed a wait-and-see approach, emphasising uncertainty ahead. He noted rising short-term inflation expectations but highlighted that long-term expectations remain stable.
Powell acknowledged that tariffs contribute to higher goods prices but are hard to quantify in terms of inflation. He said the Fed could either cut or hold rates at a "clearly restrictive" level. On the balance sheet, he clarified that the slowdown in runoff was a technical adjustment, not a policy shift. He also clarified that removing the language about balanced risks was not a signal.
Since the meeting, markets have been rocked by the US tariff announcements this week, which analysts said have the potential to lower the US growth trajectory while boosting inflation.
Reports note that the tariffs imposed by President Trump create a challenging environment for the Fed, complicating efforts to control inflation and prevent a recession. Bloomberg said it might lead to a cautious approach by the central bank as it monitors the economic impact before taking further action.
Still, money markets began to discount four 25bps rate reductions this year following the announcement. Morgan Stanley, however, has leaned back on this, with the bank scrapping its call for a June Fed cut after Trump’s tariff announcement, as a result of "tariff-induced inflation," and now sees the FOMC on hold until next March. MS said that if tariffs persist, US economic growth may suffer, with downside risks increasing.
US CPI (THU): Analysts expect headline US CPI to rise 0.2% M/M in March, matching the February reading; the core rate of inflation is seen climbing by 0.3% M/M, picking up from the prior pace of 0.2%. However, the market may not be as sensitive to the data as it has been in recent months, given that the US announcement of tariffs on trading partners has the potential to boost prices ahead, analysts have said.
"The March CPI data will feel dated following President Trump’s announcement of significantly larger tariffs across trading partners, but should shed some light on how the changing trade environment was already beginning to affect pricing," Wells Fargo writes, and while it thinks that March could mark the nadir in core inflation this year, the administration’s efforts to reorient US trade could lead to faster price growth.
UK GDP (FRI): Expectations are for M/M GDP in February to pick up to +0.1% from -0.1% with the 3M/3M rate seen at 0.4% vs. prev. 0.2%. As a reminder, the prior release saw a 0.1% M/M contraction in January vs. the 0.4% expansion seen in the prior month. Capital Economics attributed the downside to payback from a surprisingly strong December i.e. December data "made the economy look stronger than it really was".
This time around, analysts at Investec), who forecast an above-consensus print at 0.2%, suggest that the upside in the headline could be driven by the strong outturn for retail sales in February. That being said, the desk doubts that "other parts of the services output performed quite as well". Elsewhere, Investec (LON:INVP) expects a strong showing for manufacturing as "companies may have boosted output temporarily in order to ship what they could into the US ahead of higher US tariffs taking effect".
Nonetheless, this would only represent a partial bounce back from the pronounced drop in January and will likely be followed by "negative payback in the coming months". For the quarter as a whole, Investec looks for a Q1 growth rate of 0.4% vs. the MPC forecast of 0.25%.
From a policy perspective, the release will likely have little impact on BoE pricing, given the recent imposition of global tariffs by the Trump administration and the MPC’s focus on its inflation mandate. As it stands, the next 25bps rate cut is fully priced by June, with a total of 75bps of loosening seen by year-end.
US EARNINGS SEASON (FRI): With Q1 25 earnings kicking off next week with the banking sector on Friday, FactSet highlights that the expected annual earnings growth rate for the S&P 500 is 7.3% Y/Y.
“If 7.3% is the actual growth rate for the quarter, it will mark the seventh-straight quarter of (year-over-year) earnings growth reported by the index.” FactSet also highlights that all 11 sectors are expected to report lower earnings when compared to the end of 2024, due to downward revisions to EPS estimates.
On guidance, FS writes “68 S&P 500 companies have issued negative EPS guidance and 39 S&P 500 companies have issued positive EPS guidance”. Of course, guidance will be key given the economic uncertainty ahead, following US President Trump’s aggressive tariffs on the globe which has seen equity markets tumble.
This article originally appeared on Newsquawk.