Will the Fed Cut Rates in March? Powell’s Speech Hints at Caution

The Federal Reserve is heading into a crucial policy meeting on March 18, 2025, and the big question is whether it will take its first step toward lower interest rates this year. While some economic indicators seem to support a cut, Fed Chair Jerome Powell’s latest speech suggests the central bank is in no rush to move. Speaking at the Chicago Booth Business School, Powell acknowledged a strong economy but also pointed to uncertainties that could keep the Fed on hold for now.

Powell Sees Solid Growth but Softer Consumer Spending

The U.S. economy continues to grow at a steady pace. Powell noted that fourth-quarter GDP expanded by 2.3%, a sign of resilience despite global uncertainties. Strong consumer spending played a key role in sustaining growth, but Powell flagged a slowdown in recent months.

What’s causing the shift? Uncertainty over trade policy is one factor. Powell pointed to the potential economic impact of new tariffs introduced by the Trump administration. While fears of a recession have faded, businesses and consumers are showing signs of caution.

The labor market is also sending mixed signals. February’s job report showed only 151,000 new non-farm payroll additions—well below the monthly average of 191,000 since September. Meanwhile, the unemployment rate inched up to 4.1%. While Powell didn’t sound alarmed, he acknowledged that these trends warrant close monitoring.

Inflation Is Falling, but the Last Mile Is Tricky

Inflation has come down significantly from its 2022 peak, a victory for the Fed’s tightening cycle. Back then, price growth topped 7%, sparking fears of an overheating economy. Powell highlighted that inflation has cooled without triggering a major slowdown—an outcome economists rarely see.

However, recent data suggest the final stretch toward the Fed’s 2% target won’t be smooth. The latest reading for the Fed’s preferred inflation measure, the Personal Consumption Expenditures (PCE) index, stands at 2.5%, with core inflation above 2.6%.

There are concerns that tariffs on Chinese goods, combined with retaliatory measures, could add fresh inflationary pressure. Powell acknowledged that these factors could complicate the path forward.

• The challenge: Inflation is lower but still above target.
• The wildcard: Trade policies could push inflation higher.
• The Fed’s dilemma: Cut rates too soon, and inflation could rebound. Wait too long, and economic momentum could slow.

What’s Next for Fed Policy?

Powell’s speech hinted at a cautious approach in the near term. He stressed the need to separate short-term noise from long-term trends, suggesting that the Fed may hold steady in March and reconsider rate cuts later.

Trade and immigration policies under Trump’s administration could play a key role in shaping the Fed’s next steps. Powell pointed out that restrictive immigration policies and higher tariffs could both have inflationary effects, making the Fed’s job even more complicated.

If inflation remains sticky, the Fed may opt to delay cuts until mid-year or beyond. The March meeting could serve as a checkpoint rather than a turning point, with policymakers waiting for more clarity before making their move.

One thing is clear: The Fed isn’t rushing into rate cuts just yet.