Summary of Key Decisions on March 20, 2025
I. Interest Rate Policy: Holding Steady but Signaling Flexibility
1. Interest rates remain unchanged
The Federal Reserve maintained the target range for the federal funds rate at 4.25%-4.50%, in line with market expectations, marking the second consecutive pause in rate hikes. The resolution statement emphasized that the current policy stance is 'sufficiently restrictive,' but retains the possibility of adjustments based on data.
2. The dot plot suggests a rate cut path
Expect two rate cuts in 2025 to 3.9%, and another two cuts in 2026 to 3.4%, with the long-term neutral rate median maintained at 3.0%.
The dot plot shows increasing internal divisions: 8 officials believe there will be only one rate cut this year or none at all, while only 2 support three rate cuts.
3. Powell's Statements
There is no need to rush to adjust policies, emphasizing the need for more data to verify inflation trends, but if the labor market significantly deteriorates or inflation unexpectedly declines, rate cuts may occur earlier.
II. Balance Sheet: Historical Slowdown in Asset Reduction Pace
1. Technical Adjustment
Starting April 1, the cap on U.S. Treasury reductions will drop from $25 billion per month to $5 billion (an 80% reduction), while the cap on agency MBS reductions will remain unchanged at $35 billion.
Powell described this move as a 'technical decision' aimed at extending the asset reduction cycle to avoid liquidity shocks, rather than sending a policy signal.
2. Deep Intent
Relieve pressure on the U.S. Treasury market, in conjunction with the Treasury's debt ceiling negotiations;
Reserve policy space for a potential economic recession to prevent a repeat of the 2019 'liquidity crisis.'
III. Inflation and Tariffs: Reintroducing 'Temporary Theory' Sparks Controversy
1. Inflation assessment
Powell acknowledged that short-term inflation is driven by tariffs, but emphasized that long-term expectations remain stable around the 2% target, with core PCE inflation forecast raised to 2.8% (in 2025).
He stated that the current rise in inflation is 'partly due to tariffs,' but if the impact is a one-time shock, it can be ignored.
2. Risk Points
The University of Michigan's consumer inflation expectations rose to a 30-year high, but Powell referred to it as an 'outlier';
If commodity inflation data continues to be strong, it may be forced to delay rate cuts.
IV. Economic Outlook: Rising Recession Risks but Overall Controllable
1. Data Divergence
Hard data (employment rate 1.7%, consumer spending) remains robust, while soft data (consumer confidence, business surveys) significantly worsens;
The GDP growth forecast for 2025 has been sharply revised down from 2.1% to 1.7%, reflecting concerns of policymakers.
2. Recession probability
Powell acknowledged that the likelihood of recession 'has increased somewhat,' but remains at a 'relatively mild level' (about 25%).
V. Market Impact and Strategy Recommendations
1. Immediate response
U.S. stocks rebounded: the Nasdaq index rose over 2%, led by tech stocks.
U.S. Treasury yields plummeted: the two-year yield fell below 4.0%, and expectations for rate cuts increased.
2. Investment Logic
Short-term: Pay attention to the impact of April's slowing asset reduction on U.S. Treasury liquidity, and allocate to short-duration Treasury bonds.
Medium-term: If core PCE inflation does not fall as expected, beware of the risk of refuting the June rate cut expectations.
Long-term: Bet on 'lower interest rate central + stagflation narrative,' increase holdings in inflation-resistant assets like gold and Bitcoin.
Conclusion
This decision highlights the Fed's difficult balance between 'data dependence' and 'political pressure': it must address inflation disturbances caused by Trump's tariffs while reserving ammunition for a potential recession. Historical experience shows that when the 'dot plot' diverges from market expectations (as in 2024), it is often accompanied by severe volatility. Investors should closely monitor April's non-farm data and CPI trends, and beware of secondary shocks triggered by 'hawkish expectation adjustments.'