United States: Central Bank keeps rates steady in March
Latest bank decision: At its mid-March meeting, the Central Bank kept the target range for the federal funds rate at 3.50–3.75%, following 75 basis points of rate cuts from August to December last year.
Inflation uncertainty drives hold: The Fed decided not to continue cutting interest rates given inflation is still above the 2.0% target and that upside risks to the inflation outlook have risen due to the recent surge in energy prices. A wait-and-see approach was warranted given uncertainty over how long conflict in the Middle East—which has driven the surge in energy prices—will last.
More cuts are possible: The Fed’s own forecasts are for 25 basis points of cuts by the end of 2026, with our Consensus for slightly more aggressive monetary easing. However, risks are skewed towards no cuts due to high energy costs pushing up price pressures.
Panelist insight: TD Economics’ Thomas Feltmate said:
“Provided the conflict in the Middle East is short lived, the drag on growth and hit to inflation is likely to be relatively small (see forecast). But a more prolonged conflict that leads to higher oil prices and a more meaningful tightening in financial conditions raises the odds of a stagflationary type outcome (i.e., low growth, higher inflation). There’s no way of knowing how this will play out, but by maintaining maximum flexibility, the Fed stands well positioned to respond to the dual-sided risks.”