“Dot plot”: 8 of 19 participants see either no cut or just 1 cut in 2025.
By Wolf Richter for WOLF STREET.
The FOMC voted today to keep the Fed’s five policy rates unchanged, for the second meeting in a row, after cutting by 100 basis points in 2024. All participants agreed with the rate decision. But Christopher Waller dissented because he preferred to continue the current pace of QT.
- Target range for the federal funds rate at 4.25-4.50%.
- Interest it pays the banks on reserves at 4.40%.
- Interest it pays on overnight Reverse Repos (ON RRPs) at 4.25%
- Interest it charges on overnight Repos at 4.50%.
- Interest it charges banks to borrow at the “Discount Window” at 4.50%.
And participants see only two cuts in 2025 as per the median projection in the “dot plot,” with a hawkish shift: four participants see no cut, and another four participants see only one cut.
The FOMC will slow QT. After outlining it in a series of communications, the FOMC provided details today:
- It will slow the Treasury securities run-off to $5 billion a month starting April 1, from currently $25 billion a month.
- It will let MBS continue to run off. The MBS runoff, which is not capped, has been around $15 billion a month.
The Fed has outlined the reasons for slowing QT in prior communications: It now sees a risk that the massive liquidity flows around debt-ceiling dynamics, which affect the liabilities on its balance sheet, will mess up the indicators it uses to determine if QT has sufficiently reduced the reserve balances on its balance sheet to be near “ample.” The Fed has already shed $2.2 trillion in assets since it started QT in July 2022.
[Update from Powell at the press conference: Powell said that after discussing these issues, participants “liked” the idea of going “slower for longer” with QT, to avoid any risks associated with withdrawing this much liquidity, and this “slower for longer” was the reason they effectively cut QT in half].
The “dot plot.”
Today’s meeting was one of the four per year when the FOMC releases its “Summary of Economic Projections” (SEP), which includes the “dot plot.” The prior SEP came out at the December meeting.
For the SEP, each of the 19 participants jots down where they see the Fed’s policy rates, unemployment rates, GDP growth, and PCE inflation by the end of the current year and by the end of each of the next several years. The median value of these projections becomes the headline “median projection” for that metric. These projections are neither a decision nor a commitment. Members change their projections as the economic situation changes.
Interest rates: only 2 cuts in 2025. The midpoint of the target range for the federal funds rate is currently 4.375%.
Today’s median projection for the end of 2025 remained at 3.875%, same as in December, so only 2 cuts of 25 basis points each in 2025, reflecting the Fed’s continued “patience,” as the Fed governors are now calling this wait-and-see period.
Projections by the 19 FOMC members for the midpoints of the federal funds rate by the end of 2025 (bold = median):
4 see 4.375%: No cuts
4 see 4.125%: 1 cut of 25 basis points
9 see 3.875%: 2 cuts of 25 basis points
2 see 3.625%: 3 cuts of 25 basis points.
GDP growth: The median projection for real GDP growth for 2025 declined to 1.7%, from 2.1% at the December SEP. And 2026 growth was reduced to 1.8% (2% is the 15-year average real GDP growth of the US).
Unemployment rate: The median projection for the unemployment rate at the end of 2025 rose to 4.4% (from 4.3% at the December SEP).
Inflation rate, median projections continue to rise:
- “Core PCE” inflation by the end of 2025 jumped to 2.8% (from 2.5% at the December SEP). Actual core PCE price index for January was 2.6%.
- Headline PCE inflation by the end of 2025 rose to 2.7%, from 2.5% in the December SEP, and higher than it is now (2.5% in January).
- Still no 2.0% in sight until 2027.
The “longer-run” federal funds rate: The median projection for the “longer-run” federal funds rate beyond 2027 remained at 3.0%, same as in December, and up from 2.9% in September, 2.8% in June, and 2.6% in March last year.
At the same time, it sees PCE inflation at 2.0% beyond 2027. In other words, over the longer term, it sees the midpoint of the federal funds rates to be 1 percentage point higher than PCE inflation.
What changed in the FOMC’s statement:
New: “Uncertainty around the economic outlook has increased. The Committee is attentive to the risks to both sides of its dual mandate.”
Old: “The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”
Added language about QT: “Beginning in April, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25 billion to $5 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion.”
The whole statement:
Recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty around the economic outlook has increased. The Committee is attentive to the risks to both sides of its dual mandate.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. Beginning in April, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25 billion to $5 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Adriana D. Kugler; Alberto G. Musalem; and Jeffrey R. Schmid. Voting against this action was Christopher J. Waller, who supported no change for the federal funds target range but preferred to continue the current pace of decline in securities holdings.
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– No surprise here. Mr. Market told me in advance that the FED would leave rate unchanged. But Mr. Market could be a rate cut in Arpil or May of this year.
We’ve been saying since mid-December that there wouldn’t be a cut at this meeting because that’s what the Fed has been saying since mid-December. You just need to listen to the Fed.
Looks like a soft landing to me. All those screaming recession all the time won’t be happy.
There was no landing.
Inflation increasing and discussing rate cuts are polar opposites. Relatively speaking this may be “hawkish” for the Federal Reserve, but in working man’s consumer reality we are talking about various degrees of “dovish;” and assigning the word “hawkish” for the least limp side of dovish spectrum.
The era of Hawkish central bankers is long gone. Elevated level of public and private debt around the world will prevent central bankers from being hawkish. They will always err on the side of inflation and remain dovish. The only important question is how much inflation will be tolerable.
The track record of central bankers in pricking debt bubbles is so bad that no one wants to even attempt it.
The FED absolutely loves what it has created here – persistent inflation above its illegal “target.” They pay lip service as if they care, but their goal is to maximize inflation to pay for their own greed and sins, but stop just short of the point of a revolution.
The Fed could throw you a lavish birthday party with your favorite cake with cherries on top and you’d find a way to complain about it.
Interesting notion of “median”, with 8 below and only 2 above. Someone rounded to make the presentation slide.
If you use floating point numbers, my calculator comes out with 4.0, or on pretty much dead on the line between the 9 majority and the 8 who are more concerned about inflation.
Median is the value in the middle, it’s not “average.” You might want to look up the definitions of “median” and “average.” There are really important concepts, and you should have a firm grip on them.
The Fed for sure is not seeing a recession.
And they may be right, or they may be wrong. Place your bets.
How often have then called a recession correctly?
Never as far as I can tell
Wolf read the tea leaves correctly about QT/UST slowing (25B/mo to 5B/mo starting in April).
https://wolfstreet.com/2025/03/08/why-the-fed-considers-pausing-or-slowing-qt-until-the-resolution-of-the-debt-ceiling-situation/
Glad to see that Fed kept QT/MBS at 35B/month. At least someone at the Fed realizes that the the great housing inflation in 2021-2022(+) has been incredibly destructive to the productive economy. How can you possibly have manufacturing when wages must double to afford a roof over your head?
The MBS number is pure fantasy
I don’t recall the Fed ever hitting the actual rolloff number since QT started.
Powell: Every forecaster believes tariffs are inflationary.
What about ZIRP ? Was that inflationary ?
King JPow and his merry band of Bailout Boys have decreed, let the bailouts continue! And the market dideth rejoice in jubilation.
I don’t see any bailouts. Personally I see a sensible Fed…compared to what we have gotten used to since Greenspan.
My reading between the lines in the last two years is
1. Fed no longer believes QE does any good to the economy. It may actually be harmful
2. It is more sensitive to employment than inflation. So will tolerate inflation to achieve full employment (what the duck the define it as)
Your comment is likely about the market and its behavior. Well they are conditioned. It will take time. Perhaps the next crisis will test the assumptions of the market :)
Nice of them to come around and realize the errors in their ways after they made homes and food nearly inaccessible to the average person.
yeah what good is full employment if the jobs don’t pay for the necessities of life?
Fed done with QE? That could be wishful thinking.
If they continue the goal of avoiding recessions at all costs, they may need lots of future QE. Many are saying the stock and RE markets are the economy and there is no denying they are inextricably linked.
Isn’t QE is the Fed’s only effective tool to reverse panic and support asset prices in the face of turbulence? Do we think the Fed will just stand by in the face of a 50% stock market drop, which is certainly plausible?
Since when is not cutting rates in the face of rampant inflation considered “hawkish”?
Definition from Investopedia:
“A hawk generally favors relatively higher interest rates if they are needed to keep inflation in check. In other words, hawks are less concerned with economic growth and more focused on the potential of recessionary pressure brought to bear by high inflation rates.
Hawk doesn’t mean rate hikes. It means a greater focus on inflation and a lessor focus on economic growth. Dove favors economic growth and brushes off inflation.
Stagflation sure still looks likely to me.
Stagflation’s a no-go per the Fed’s report.
Growth’s humming, jobs are solid, and inflation’s cooling, not spiking. The Fed’s chill with steady rates. Your stagflation bet seems like a miss. Maybe find a sector where all those factories are being built.
Are these the factories due to Trump’s tariffs? I have not seen any announcements.
Fed cuts year-end GDP forecast from 2.1% to 1.7%
Fed raises year-end core PCE forecast from 2.5% to 2.8%
Fed raises year-end unemployment forecast from 4.3% to 4.4%
Downward revisions to growth forecasts and the upward revisions to inflation and unemployment projections sounds like stagflation.
2% is the average 15-year GDP growth rate of the US. 1.7% is NOT stagnation, it’s still pretty decent growth, just a little below average.
Stagflation requires a stag. We’ve got the flation. Stagnation means little or no growth, so closer to 0% growth over some period of time. We might eventually get it, but 1.7% isn’t it.
“4 see 4.375%: No cuts
4 see 4.125%: 1 cut of 25 basis points
9 see 3.875%: 2 cuts of 25 basis points
2 see 3.625%: 3 cuts of 25 basis points.”
by the end of 2025.
So “4 see 4.375%”, “4 see 4.125%”, and “9 see 3.874%”. Based on this, the weighted average is 4.065% at yearend. I am excluding the outlier of “2 see 3.625%” (I am not a big fan of outliers). I can live with around 4.065%. Of course, these estimates are all guesses and not much to hang ones hat on. Not sure why the stock market got all excited about an estimated reduction from 4.375% to around 4.065% at end of year, which is only a .310% reduction.
Note that I am taking a weighted average of the estimates and excluding the outlier, the weight being the number of participants. I can show you the math if you like. FYI, a median using only 4 data points is not interesting to me. It makes for a pretty useless histogram.
“Fed Sticks to Wait-and-See, Sees Only 2 Cuts in 2025”
Total f***ing sham – a FED talking about rate cuts when CPI is running 3% a year coming off of nearly double digit inflation. These mothertruckers should be hauled off to the gulag for what they’re doing. “Stable prices” my asz. They are destroying the value of the dollar on purpose. Is it any wonder gold is soaring?
There is no reason to slow down QT. They could have waited until debt ceiling fight occurs. Wall Street loves it when they slow down QT.
Peter Schiff just came out and predicted double digit inflation just around the corner. And he didn’t want to say what the 1st digit of the double digit would be. Gold is heading for $4000/ounce. ENJOY!
I think gold is ultimately going to $10,000 per ounce in USD. The FED is “letting inflation run hot.” They told us this back in 2021.
“Bravo Company rumor control desk. You’re speaking on an unsecure line.”🤣🤣🛰️
Lots of interesting stuff going on in the precious metals markets now and very little of it has to do with all the talk about tariffs
IMO all the flows of physical bullion between countries has to to with settling huge OTC shorts in both gold and silver as well as other fancy derivative bets. These transactions are being settled in physical bullion rather than in paper or cash as has happened in the past
Some of this may also have to do with the COMEX becoming Basel III compliant on 1 July this year.
Lastly the huge moves in silver market are more than likely the big shorts selling to hit stops to chase our weak holders to try and cover their short bets at lower prices. With the concentration of positions in the silver market it is still subject to huge moves and manipulation.
Just remember that any futures exchange can unilaterally change or cancel any futures contract or the terms at any time
Had the Hunt Brothers take physical delivery of their silver they would have been okay. They didn’t and look what happened to them.
And as far as the price of precious metals…who knows what will happen as it appears that there is huge demand for numerous reasons.
Looks like 4,3% fed fund rate. I plan accordingly.
Is change to 5B QT temporary?
It’s $20 billion of QT: $5 billion in Treasury QT plus MBS QT without cap, which has been running at $15 billion a month. so total QT is about $20 billion a month, half the prior pace.
The official motto, as per Powell today is: “slower for longer.”
It’s not “temporary.”
Perhaps “QT Infinity”? 🤣 (just kidding)
so when it’s time to print, print at $120 billion a month, but when it’s time to unprint, start at $90, then go to $60, then go to $20 billion.
looks like a bias toward inflation.
SO, what this tells me is that I should expect EITHER: 0 cuts, or 5.
The status quo will be “wait and see.” If nothing to see? Nothing to do (growth, employment and inflation stay nearly the same as the last year: all decently high).
OR: Employment slows, and therefore growth (chicken or egg?), potentially (not necessarily) taking inflation down with it: Panic, 50bps cuts for a couple meetings and a “fed put” 25bps cut to show: we still have your back Wally.
The panic could be induced by a grinding bear market… which the Fed is “agnostic” to, but could point to growth or employment as justification.