|

Fed: Optionality preserved as cuts still projected – Wells Fargo

Wells Fargo analyzes the March FOMC decision, noting the Federal Reserve kept the fed funds rate at 3.50%-3.75% and avoided signaling timing for future moves. The bank highlights modest upward revisions to PCE inflation and GDP, unchanged unemployment projections, and a median year-end fed funds rate of 3.375%. Wells Fargo still expects two 25 bps cuts in 2026, potentially delayed if inflation risks persist.

Fed holds rates while eyeing future cuts

"As expected, the FOMC left the fed funds rate unchanged at 3.50%-3.75% at its March meeting and was careful not to hint at the timing of future adjustments."

"Participants seemed hesitant to incorporate looming stagflation risks into the SEP. The median estimate for PCE inflation at year-end rose to 2.7% from 2.4% in December, less than what we were expecting. Meantime, the median estimate for GDP this year was revised up a tenth and the median unemployment rate was unchanged."

"Wait-and-see mode kept the median view of rates this year unchanged. The median estimate of the fed funds rate at year-end remained at 3.375%, implying one 25 bps cut in 2026, while the median dot for 2027 held at 3.125%. The continued bias toward easing reflects that most Fed officials still view policy as slightly restrictive, even as the median long-run estimate drifted up a tenth to 3.1%."

"Two more cuts this year remain our base case. We sympathize with the view that the labor market remains on a shaky footing. While renewed inflation concerns generate risk to our call for the FOMC to cut again by June, we still look for two 25 bps cuts this year and acknowledge they just might end up coming a little later."

"So long as long-term inflation expectations stay anchored, we believe the Fed could still move the fed funds rate further toward neutral in the second half of the year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)

Author

FXStreet Insights Team

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

More from FXStreet Insights Team
Share:

Editor's Picks

AUD/USD consolidates near 0.7000 as USD stays weak

AUD/USD holds steady above 0.7000 during Thursday’s Asian session, consolidating the previous day’s recovery gains from a near three-week low as the Democratic sweep in the US midterm elections and Iran diplomacy hopes continue to weigh on the US Dollar. Bulls, however, seem hesitant as focus shifts to Friday’s crucial US NFP report.

USD/JPY drifts lower to 158.25 on hawkish BoJ Minutes, weak USD

USD/JPY trades with a negative bias for the second straight day on Thursday as hawkish BoJ Minutes, showing members agreed to keep raising rates, and intervention risks support the Japanese Yen. Meanwhile, US midterm election results and hopes for Iran diplomacy keep the US Dollar depressed as focus shifts to Friday’s US NFP report.

Gold consolidates gains around $4,100

Gold now surrenders part of its initial bull run, although it sticks to the $4,100 region per troy ounce on Thursday. The yellow metal extends it recovery on the back of the lacklustre performance of the US Dollar and declining US Treasury yields following the US midterms elections.

The memory trade collapses as Sandisk sheds 17%, Micron sinks to May levels
If Wednesday's stock market rally was a broad vote of confidence in the Democratic sweep of the US midterm elections, Thursday is the other side of that coin. While the AI sell-off already began on Wednesday, it has kicked into higher gear on Thursday. The NASDAQ Composite has swung to a 4% loss in the morning regular session, while the S&P 500 and Dow Jones also shed Wednesday's gains.
NFP stress test: Six payrolls releases, measured in daily-loss limits

Friday's US employment report is usually previewed in terms of the headline number and the reaction in the Dollar. For a growing group of traders, those running funded or evaluation accounts with a fixed daily loss limit, there is a more practical question: how much of that limit can the first hour consume, regardless of direction?

US Dollar breaks below 101.50 as Democrats sweep Congress
The US Dollar (USD) comes under heavy selling pressure on Wednesday, with the US Dollar Index (DXY) falling around 0.5% to trade near 101.35 after sliding below the 101.50 level. The Greenback retreats to its lowest level in four weeks as investors reassess the political and economic outlook following the Democratic Party's sweeping victory in the United States (US) midterm elections.