Today, March 19, 2025, the Federal Reserve System (Fed) will make a decision on the key interest rate. Investors and analysts are closely watching the meeting as it will determine the future direction of monetary policy and impact global financial markets.
The consensus forecast indicates that the Federal Reserve will keep the rate unchanged. However, against the backdrop of trade wars, a slowing global economy, and market instability, the question arises: what will happen if the Federal Reserve decides to lower the rate?
Current macroeconomic situation
1. Inflation remains above the target level
Despite some slowdown in inflation in the U.S., its current level still exceeds the Federal Reserve's target of 2%. The Fed has repeatedly stated that easing policy is only possible with a sustained decline in inflation. However, a sharp rate cut could lead to a new surge in prices, especially if consumer demand does not weaken.
2. The threat of trade wars
The situation with global trade remains tense. The approach of April 2 – the date when the Trump administration may impose new tariffs and industry fees – adds uncertainty. If the U.S. indeed takes this step, imported goods will become more expensive, intensifying inflationary pressure.
In such an environment, a rate cut would be too risky as it would weaken the dollar and create even greater imbalance.
3. The stock market and cryptocurrency bubble
The stock market is already in a state of overheating, and cryptocurrencies are experiencing volatile movements. A sharp rate cut will provoke a powerful influx of liquidity, which may lead to even greater inflation of financial bubbles.
BTC and Nasdaq are already dependent on expectations regarding the Federal Reserve. If the market feels that policy will become more accommodative, growth could be rapid. However, in the case of a sharp drop in sentiment, the opposite effect could be catastrophic.
Why could a rate cut trigger the largest recession?
If the Federal Reserve does decide to lower the rate, it could lead to the following consequences:
Inflation acceleration – a weakened dollar will increase the cost of imports, which will, in the long term, again accelerate price growth.
Credit bubble – cheap liquidity will intensify risky investments, which could lead to uncontrollable growth in corporate and household debt.
Market crash after overheating – if the stock market and cryptocurrencies soar on expectations of low rates, and then sharply correct, it will trigger a chain reaction of liquidations and mass bankruptcies.
A sharp rate hike in the future – if the Federal Reserve realizes that easing was a mistake, it will have to raise rates urgently. This will deliver a powerful blow to the economy, similar to the 2008 crisis, but under much more complex conditions.
Experts are already calling the potential crisis 'Great Recession 2.0' if mistakes in monetary policy prove to be too severe.
Conclusion
Today's Federal Reserve meeting could be defining for the entire global economy. Most likely, the regulator will keep the rate unchanged, as a reduction carries immense risks.
However, it is important to monitor not only the decision but also Jerome Powell's rhetoric. If he hints at possible easing in the future, it could trigger a short-term rise in risk assets such as BTC and Nasdaq.
But in the case of an unexpected rate cut, the market could enter a dangerous overheating phase, potentially triggering the largest recession in U.S. history in the coming weeks.
