Fed meeting in focus: Benchmark rate likely to be kept unchanged

The Federal Reserve will hold its monthly meeting today, March 19, to discuss monetary policy and interest rates, with expectations leaning towards keeping rates unchanged within the 4.25-4.50% range, amid ongoing inflationary pressures and concerns over an economic slowdown.

The Fed will announce its policy decision and quarterly economic projections today at 2:00 pm Washington time (9:00 pm Makkah time), followed by a press conference by Chairman Jerome Powell, where he will provide insights into future monetary policy.

Analysts told Argaam that the meeting comes amid economic uncertainty, with markets currently ruling out any rate cuts. However, investors will closely monitor Powell's statements on monetary prospects, particularly in terms of quantitative tightening and growth projections.

US Economic Outlook: Between Slowdown and Persistent Inflation

Wael Makarem, Senior Market Strategist for MENA Region at Exness, said the Fed is expected to keep interest rates unchanged during today’s meeting.

This widely-anticipated decision will be supported by the decline in core inflation to 3.1% — the lowest since 2021 — along with the stable unemployment rate of 4.1% and moderate GDP growth projections.

He noted that interest rate cuts are expected in 2025, with two to three reductions of 25 basis points each during the year. However, the March meeting is unlikely to mark the beginning of these rate cuts.

Raed Momani, Head of Asset Management at Capital Investments

Makarem also pointed out that Powell’s last testimony before Congress reinforced this outlook, as he emphasized that the Fed would not lower rates until there is a tangible improvement in economic data.

Future Trends and Impact of Quantitative Tightening

Raed Momani, Head of Asset Management at Capital Investments, explained that the US central bank will focus on three key factors: economic growth forecasts, inflation levels, and future interest rate trends.

He added that there are signs of downward revisions in growth forecasts and upward adjustments in inflation estimates, which could push the Fed to adopt a more cautious approach.

Momani further highlighted that the current scenario suggests the Fed may face stagflation challenges, where economic growth slows while inflation remains high. He noted that markets will also closely follow other factors such as tariffs and immigration policies, which could influence the Fed’s future outlook.

The Fed might hint at slowing the pace of bond sales, which could ease monetary tightening and impact the yield curve, according to Momani.

While the Fed controls short-term interest rates, long-term yields are driven by market forces. If the Fed slows the pace of bond sales, it could provide support to financial markets and cushion economic growth pressures, he added.

Will Powell's Statements Drive Market Stability or Trigger Woes?

Makarem added that Powell's statements could boost market confidence if interest rates were fixed at 4.5%, aligning with forecasts for no imminent changes.

With inflation standing at 2.8%, while the economy remains robust, Powell could hint at further cuts in June or July. This could in turn shift markets towards a more cautious approach, depending on upcoming data, according to Makarem.

He pointed out that any signals from Powell on economic risks, including Trump's tariff policies, could unexpectedly impact markets and raise investor concerns about growth and inflation prospects.

Economic Data: Mixed Indicators and Unclear Path

Recent economic data has played a key role in shaping the Fed's monetary policy stance ahead of its March 19 policy decision.

With inflation holding steady at 2.8% — still above the 2% target despite its pullback, coupled with the flat unemployment rate at 4.1% and the growth of new job openings by 151,000 in February, the economic outlook appears highly obscure, Makarem stated.

He added that the Federal Open Market Committee (FOMC) emphasized that any future adjustments to monetary policy will remain contingent on economic data and risk assessment.

Despite progress in containing inflation, current data do not justify a radical change in the Fed's approach. This in turn heightens the likelihood of keeping rates unchanged, with market developments still in focus in a bid to ensure a sustainable improvement.

For his part, Momani said the recent economic data is reflecting mixed signals. This is because some hard data such as jobs and retail sales continue to show relative strength in the economy, while other soft data, such as consumer confidence and business forecasts, reflect growing concerns about an economic slowdown.

The Fed will put special focus on survey data, as they provide early indicators of the future economic path, which raises uncertainty about its future direction, he added.

Implications of Fed Decisions: How Will Markets and Commodities React?

According to Makarem, financial markets may respond modestly to the expected Fed decision. However, any unforeseen turn of events, including an interest rate cut, could result in sharp volatility. This could push stocks higher, further strain the US dollar, and elevate gold prices to new record peaks.

He added that future guidance will be the decisive factor, as any signals from Powell toward a more accommodative monetary policy will support stocks and gold prices. On the other hand, any hawkish tone could trigger a stronger US dollar and encumber financial markets.

In the same vein, Momani emphasized that gold may maintain its growth trajectory amid increased demand from global central banks, especially in emerging markets such as China, along with heightened geopolitical uncertainty.

Historically, gold prices have exhibited an inverse correlation with real bond yields, with higher yields leading to lower demand for gold and vice versa. Robust demand from China and global central banks could bolster bullion’s uptrend despite the strength of the US dollar, he further stated.

Momani also pointed out that any decline in gold prices could present a buying opportunity, particularly with the ongoing global trade and political tensions, which strengthens gold's safe-haven bid.

Previous Fed Meetings: How Did They Influence Global Markets?

Momani explained that the Fed’s March 2025 meeting is unlike previous ones, as the US central bank seems more focused on both inflation and growth risks, which could fuel changes in financial market trends.

The Fed's decisions, according to the head of asset management, do not only impact on the US economy, but they also extend to global markets, especially emerging markets, which may be affected by capital flows and exchange rate fluctuations.

He pointed out that global financial markets are cautiously anticipating the Fed’s March meeting decision. This is because US stock indices posted mixed performance in the previous days, while bond yields remained at relatively high levels, reflecting uncertainty about the Fed's upcoming decisions.