All Eyes on the Fed: Where Do Rates Go Next?

The Federal Open Market Committee (FOMC) is holding its latest policy meeting this week, which will be particularly scrutinized by investors.

On March 19, the FOMC will announce its second monetary policy decision of the year. With recession fears rising amid President Donald Trump’s trade war, investors are watching closely for any hints about the central bank’s next move.

Federal funds futures suggest that the Fed will hold rates steady at 4.25% to 4.5% for a second consecutive meeting. However, the real focus will be on the language in the Fed’s monetary policy statement and comments from Chair Jerome Powell during his post-decision press conference.

Will the Fed Cut Rates this Year?

Futures markets indicate that the Fed might resume rate cuts in June, with expectations for three cuts in total this year. The big question is: Will Powell validate those expectations?

The Fed chair is likely to tread carefully, avoiding any statements that might cause tension with President Trump. 

Complicating the outlook, there are still many unknowns regarding the economy, particularly the impact of Trump’s tariffs on both growth and inflation. That makes it difficult for Powell and his colleagues to confidently forecast the future path of interest rates.

Regardless of the specifics, investors will be looking for reassurance that the central bank will step in if needed—the so-called “Fed put.”

Treasury bonds have already started pricing in the possibility of looser monetary policy later this year. The iShares 7-10 Year Treasury Bond ETF (IEF) and the iShares 20+ Year Treasury Bond ETF (TLT) are up 2.9% and 3.9%, respectively, year to date. 

Meanwhile, the two-year Treasury yield—which is highly responsive to Fed policy—has fallen from a high of 4.35% in February to around 4% today.

With so much riding on the Fed’s outlook, investors will be listening intently for any clues about what’s next.