US Fed Will Announce Policy Decision in Light of “Stagflation Risk”

On March 19, a rate-setting panel led by US Fed Chair Jerome Powell will announce the US central bank’s second policy decision for 2025, despite widespread anticipation of an interest rate suspension due to economic uncertainties around tariffs.

US Fed Policy:

Despite the threat of “stagflation” to the most excellent economy in the world, the US Reserve started its two-day monetary policy meeting on March 18 with widespread Wall Street forecasts of an interest rate pause at the current 4.25–4.50%. US inflation risks have increased due to US President Donald Trump’s tariff rises, which intensified a trade war with neighboring nations.

Today’s US Fed meeting might put the central bank and its chairman, Jerome Powell, in a far more difficult position. Although it decreased last month, inflation is still high and might rise due to tariffs. Additionally, business and consumer confidence has been severely damaged by tariff threats and drastic cuts to government expenditure and employment, which could hurt the economy and increase unemployment.

The phrase “stagflation” plagues central bankers and combines persistently high inflation and a weak or stagnant economy. If it materializes, the Fed finds it challenging to deal with stagflation because policymakers usually raise rates or maintain high levels to fight inflation. However, the Fed would typically lower rates to lower borrowing costs and spur growth if unemployment also increased.

1. US Fed Chair Jerome Powell announces a suspension in interest rates: As it waits for broad uncertainty resulting from President Donald Trump’s plans, the US Federal Reserve is expected to maintain its benchmark interest rate at its current level in the upcoming months, according to US Federal Reserve Chair Jerome Powell. According to US Fed chair Powell, the “net effect” of the Trump administration’s policy changes will determine the US economy and the US Fed’s interest rate policies. Powell stated that the Trump administration is changing policies in several areas, including trade, taxation, government spending, immigration, and regulation.
2. Modifications to the US Fed’s “dot plot” projections: As part of a review of the US central bank’s policy framework that is slated to conclude by the end of summer, US Fed Chair Jerome Powell hinted at possible modifications to the Fed’s widely followed “dot plot” interest-rate estimates. At a research conference in New York, Jerome Powell stated, “On the communications…particularly our post-meeting communications, we’re going to take a close look at the SEP and also compare ourselves to what other central banks around the world do,” about the US Federal Reserve’s summary of economic projections.
3. The US Fed is “in no hurry” to lower interest rates: Powell stated that although there have been recent developments in a number of these areas, including trade policy, “uncertainty surrounding the changes and their likely effects remains high.” As the outlook changes, we focus on distinguishing the signal from the noise as we analyze the incoming data. We are in a good position to wait for further information and don’t need to be in a rush. During the post-policy news conference following the US Fed’s January ruling, Powell stated that the US central bank had delayed interest rates to observe more inflation developments. In January, US Fed officials said that the labor market was still doing well and that the country’s inflation rate was still “somewhat elevated.”
4. Trump appointed Michelle Bowman as US Fed vice chair for supervision. Donald Trump appointed Michelle Bowman on Monday as the new vice chair for supervision of the Federal Reserve. Bowman is perceived as advocating a more relaxed approach to banking regulation. The Senate, which Trump’s Republican party controls, must approve the central bank position. Trump posted on his Truth Social website, “I am happy to announce that Michelle ‘Miki’ Bowman will be the new Vice Chair of Supervision at the US Federal Reserve.” “Miki has the ‘know-how’ to get it done,” he stated. In 2018, Trump nominated Bowman, a former community banker, to the Fed’s governing board. The bank’s seven-member Board of Governors, which now consists of three Republican appointees—US Fed chair Jerome Powell, Bowman, and Governor Christopher Waller—must designate the US Fed vice chair for supervision.
5. Wall Street anticipated two rate decreases in 2025: Barclays has increased its predictions of two rate cuts by the US Federal Reserve in 2025 from one due to the softer US labor market conditions and the uncertainties surrounding US trade policy. In June and September, the brokerage anticipates two quarter-point rate reductions. In June, it had previously predicted a single 25 basis point drop. While the second rate cut in September is expected to show “a rising unemployment rate and some signs of improvement in monthly inflation prints,” the first-rate drop in June is expected to “reflect indications of slower growth and rising unemployment,” according to Barclays. Barclays anticipates that the central bank will continue its cutting cycle in March 2026 after taking a prolonged respite following the cut in September of this year. Additionally, it reduced its growth forecasts for Q4 and Q4 of 2025 from 1.5% to 0.7%.