The Federal Reserve’s March 18-19 assembly minutes unveiled a Committee strolling a tightrope between inflation issues and progress dangers amid heightened commerce coverage uncertainty.
The minutes reveal a Fed more and more involved a few potential stagflationary setting the place greater tariffs enhance inflation whereas concurrently slowing financial progress. This locations policymakers in a troublesome place, as the standard response to greater inflation (tighter coverage) conflicts with the everyday method to slower progress (looser coverage).
The Committee additionally determined to sluggish quantitative tightening by decreasing the month-to-month Treasury securities redemption cap from $25 billion to $5 billion.
Listed below are key factors from the discharge:
- Virtually all individuals seen dangers to inflation as tilted to the upside and dangers to employment as tilted to the draw back
- Officers reduce their progress forecasts and raised their inflation outlook for 2025
- The Committee trimmed projected fee cuts for the yr from three to 2
- A number of members famous that their contacts have been already reporting value will increase in anticipation of tariffs
- Some individuals cautioned about “troublesome tradeoffs” if inflation proved persistent whereas progress weakened
- The Committee determined to sluggish Quantitative Tightening by decreasing Treasury securities redemption cap from $25B to $5B
- Governor Waller opposed slowing the stability sheet runoff, preferring to take care of the earlier tempo
- Members emphasised they have been well-positioned to reply to both persistent inflation or financial weak spot
Hyperlink to FOMC Assembly Minutes (March 2025)
The choice to sluggish stability sheet discount was primarily pushed by debt ceiling issues, with officers nervous that reserve shortage might 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 fee cuts from three to 2 for 2025 indicators a extra affected person method to easing and suggests the Committee is keen to maintain coverage restrictive for longer if inflation stays elevated. This extra hawkish stance contrasts with market expectations earlier within the yr 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 enhance after the FOMC assembly minutes dropped, snapping out of its stoop following Trump’s transfer to ease Liberation Day tariffs (besides in opposition to China). The bounce seemingly got here from the Fed signaling fewer fee cuts this yr 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.
For the reason that FOMC minutes launch, the greenback has been on the again foot, slipping throughout the board besides in opposition to the oil-linked Canadian greenback, which has not been getting a lot love both.