On March 19, 2025, the Federal Reserve released the FOMC meeting statement and economic forecasts, and as expected, there would be no interest rate cuts. Chairman Powell then gave a speech. The market responded positively to this, showing the characteristics of "loose trading": the 10-year US Treasury yield fell 8 basis points to 4.24%, the three major US stock indexes all rose, the US dollar index fell, the gold price broke through $3,050/ounce during the session, Bitcoin broke through $87,000, and Ethereum broke through the $2,000 mark.
Analysts believe that Powell stated in yesterday's meeting that he would end quantitative tightening. Next, it will depend on the emergence of real bullish signals in the market, either quantitative easing, that is, the restart of QE, or the exemption of supplementary leverage ratio or the elimination of downside risks in the economy and re-entering the growth range.
The Fed decided to maintain the policy rate in the range of 4.25-4.50%, and plans to further slow down the reduction of the balance sheet from April, reducing the rate of reduction of Treasury holdings from $25 billion per month to $5 billion. In terms of economic forecasts, the median forecast for economic growth in 2025 was significantly lowered from 2.1% to 1.7%, the unemployment rate forecast was raised from 4.3% to 4.4%, and the median forecasts for PCE and core PCE inflation rates were raised by 0.2 and 0.3 percentage points to 2.7% and 2.8%, respectively. The policy rate is expected to remain at 3.9% in 2025 (two rate cuts), and the dot plot shows that the expectation of a rate cut in 2025 has weakened. In other words, the Fed is still worried about economic downturn and inflationary pressure.
Powell's core point is that policies such as tariffs have brought huge uncertainties to inflation and the economic outlook, and the Fed has chosen to respond with "no change" and maintain the flexibility of monetary policy. He believes that the specific impact of tariffs on inflation is difficult to assess, but long-term inflation expectations remain stable; the US economy remains robust, and "hard data" such as employment and consumption perform well. Although some survey data related to expectations have weakened, the probability of a recession has increased but is still not high; the Fed does not need to curb inflation at the cost of a recession as it did in the 1970s; financial market fluctuations need to be sustained enough to attract attention.
These remarks eased the market's concerns about "stagflation", so the market rebounded overall. However, some analysts believe that the Fed's judgment may be too optimistic and fail to fully take into account the impact of tariffs and the risk of rising inflation expectations. It is more likely that the downward pressure on the US economy will exceed the Fed's prediction, resulting in a late interest rate cut in the first half of the year and a "make-up cut" in the second half of the year. The actual interest rate cut for the whole year may exceed 50 basis points. A positive factor is that the Fed decisively announced a slowdown in balance sheet reduction, which actually played a role in lowering interest rates by reducing the supply of the Treasury market to lower the yield of US Treasury bonds. This may be an important consideration for the Fed to temporarily choose to "stand still" on interest rates.
Analysts believe that although the Fed did not cut interest rates in March, it has eased the pressure of balance sheet reduction, and the overall monetary policy is moving in the direction of easing, which has also played a role in lowering interest rates by lowering US bond yields. The key point of the market next is whether the US economy will experience an unexpected downturn or inflation will exceed expectations. This is the key factor that determines the market.
Therefore, the U.S. stock market may not improve immediately and will continue to adjust weakly for a period of time, exchanging time for space and waiting for the situation to become clear. For Bitcoin, the $80,000 mark has strong support. If the U.S. stock market does not experience an unexpected decline, the current price is in the relative bottom range and can be deployed on dips.
