The Federal Reserve’s March 18-19 assembly minutes unveiled a Committee strolling a tightrope between inflation considerations and development dangers amid heightened commerce coverage uncertainty.
The minutes reveal a Fed more and more involved a few potential stagflationary atmosphere the place larger tariffs increase inflation whereas concurrently slowing financial development. This locations policymakers in a tough place, as the normal response to larger inflation (tighter coverage) conflicts with the standard method to slower development (looser coverage).
The Committee additionally determined to gradual quantitative tightening by lowering the month-to-month Treasury securities redemption cap from $25 billion to $5 billion.
Listed below are key factors from the discharge:
- Virtually all contributors considered dangers to inflation as tilted to the upside and dangers to employment as tilted to the draw back
- Officers lower their development forecasts and raised their inflation outlook for 2025
- The Committee trimmed projected price cuts for the 12 months from three to 2
- A number of members famous that their contacts have been already reporting price will increase in anticipation of tariffs
- Some contributors cautioned about “tough tradeoffs” if inflation proved persistent whereas development weakened
- The Committee determined to gradual Quantitative Tightening by lowering Treasury securities redemption cap from $25B to $5B
- Governor Waller opposed slowing the stability sheet runoff, preferring to keep up the earlier tempo
- Members emphasised they have been well-positioned to reply to both persistent inflation or financial weak point
Hyperlink to FOMC Assembly Minutes (March 2025)
The choice to gradual stability sheet discount was primarily pushed by debt ceiling considerations, with officers anxious that reserve shortage may emerge with little warning as soon as the debt ceiling is resolved and the Treasury begins rebuilding its account. This implies the Fed is taking a extra cautious method to its quantitative tightening program, although most officers emphasised this shouldn’t be interpreted as a change within the financial coverage stance.
The Fed’s discount of projected price cuts from three to 2 for 2025 alerts a extra affected person method to easing and suggests the Committee is prepared to maintain coverage restrictive for longer if inflation stays elevated. This extra hawkish stance contrasts with market expectations earlier within the 12 months for extra aggressive easing.
Market Reactions
U.S. Greenback vs. Main Currencies: 5-min
Overlay of USD vs. Main Currencies Chart by TradingView
The U.S. greenback caught a fast increase after the FOMC assembly minutes dropped, snapping out of its stoop following Trump’s transfer to ease Liberation Day tariffs (besides towards China). The bounce doubtless got here from the Fed signaling fewer price cuts this 12 months than it had beforehand penciled in.
However the rally didn’t final lengthy. Between ongoing tariff drama and the Fed flagging stagflation dangers, greenback bulls rapidly misplaced their momentum. The Buck drifted round for the remainder of the session earlier than settling into some tight ranges.
Because the FOMC minutes launch, the greenback has been on the again foot, slipping throughout the board besides towards the oil-linked Canadian greenback, which has not been getting a lot love both.
