Fed March Meeting Preview: Here's what Wall Street analysts expect from Powell

The U.S. Federal Reserve is due to conclude its regular two-day meeting on Wednesday. The market is increasingly pricing in the probability of the Fed hiking by 25 basis points.

Earlier, the bets were placed on the 50-bps rate hike as jobs and inflation data continue to come in strong. However, the ongoing global banking crisis is likely to push the Fed toward a smaller rate increase given the financial stability risks.

“While there is a debate of zero vs. 25bps, [we] continue to await messaging over whether the Fed/Trsy/FDIC will increase the size of their response and/or unveil new tools,” JPMorgan desk analysts wrote in their morning briefing note.

Investing.com’s Fed rate monitoring tool shows that the probability of a 25-bps rate increase surged to nearly 83% today from 75% on Monday.

Wall Street expectations

Here is what Wall Street’s top economists expect from the Fed tomorrow.

Deutsche Bank’s Matthew Luzzetti: “We expect the Fed to deliver a 25bp rate hike at this Wednesday's FOMC meeting. As the last week has made abundantly clear, however, the outcome of the meeting will depend on headlines and events over the coming days which could either reinforce or upend the relative sense of stability that has emerged.”

Citi’s Andrew Hollenhorst: “We project the FOMC will hike policy rates 25bp to 4.75-5.00% and raise the 2023 median dot 25bp to 5.25-5.50% on Wednesday at 2PM. The statement will likely continue to anticipate “ongoing increases in the target range.” Chair Powell and the statement will reflect a desire to use liquidity tools for financial stability while remaining resolved to bring down inflation. The hawkish or dovish market read may come down to whether Powell focuses more on financial or price stability in the press conference.”

Bank of America’s Mark Cabana: “We expect the Fed to hike by 25bps at this meeting, but the decision & outlook for any tightening depend on financial stability. Recent economic momentum & inflation have been overshadowed by banking system risks, sharply repricing the Fed’s path.”

Wells Fargo’s Jay Bryson: “We look for the FOMC to briefly pause its tightening efforts to ensure the situation is under control. In our view, the last thing the FOMC wants is more financial instability that threatens the banking system and forestalls any additional rate hikes down the road. But, neither a hike nor a pause would surprise us.”

Jefferies’ David Zervos: “We expect FOMC to raise Fed Funds range by 25 bps. We do not think that the instability in financial markets justifies a pause when weighed against the risk that the Fed loses its credibility in fighting inflation, which it worked so hard to regain.”

UBS’ Jonathan Pingle: “Inflation remains too elevated and if they believe the banking system is strong, we expect the FOMC would like to raise rates 25 bps at their meeting next week.”

Morgan Stanley’s Ellen Zentner: “We still see the Fed following through with a 25bp hike in response to persistent inflationary pressures and a very strong labor market. That said, the Fed has little incentive to surprise markets in this volatile environment, and we think it will stand ready to adjust the rates and balance sheet paths should conditions warrant.”

By Senad Karaahmetovic

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