March 2025 FOMC Preview: Not in a hurry to get worried
The desk anticipates a neutral stance from the Federal Reserve at the upcoming March FOMC meeting, reflecting a lack of urgency to adjust interest rates despite recent market volatility. Per the full note from MUFG EMEA, George Goncalves emphasizes that the Fed is not inclined to react hastily to tightening financial conditions. This perspective aligns with our view that the Fed will maintain its current policy framework, allowing for a more stable outlook in the FX markets. With no high-impact events on the calendar in the next 30 days, traders should focus on the implications of this neutral Fed stance on currency pairs, particularly the USD's performance against major currencies.
What the desk is arguing
MUFG's George Goncalves expects the Fed to deliver a neutral message at the March FOMC meeting, emphasizing that policymakers are "not in a hurry" to cut rates. The recent market volatility and tightening financial conditions are not viewed as sufficient to shift the Fed's cautious stance.
Goncalves believes the current environment does not warrant immediate action, as the Fed remains focused on inflation risks and economic resilience. This view implicitly rejects the narrative that recent volatility could force the Fed into a dovish pivot.
Where it sits in our coverage
We maintain a Eurozone-focused coverage, and while this FOMC analysis does not directly address EUR/USD, the neutral Fed stance broadly aligns with our expectation that the Fed remains on hold through early 2026. Our consensus target for EUR/USD at December 2026 is 1.12, with a spread of 1.04-1.18.
From our per-firm coverage, Goldman Sachs targets 1.15, JPMorgan targets 1.10, and Barclays targets 1.08, all for year-end 2026. MUFG's neutral view is consistent with these targets, as a patient Fed supports a gradual dollar depreciation scenario.
How other firms see it
The neutral-Fed consensus is broadly held. Standard Chartered similarly expects no rate cuts in H1 2025, aligned with MUFG. Deutsche Bank also sees the Fed on hold, emphasizing inflation persistence.
Contrary views include Bank of America, which argues the Fed may need to cut earlier due to economic slowdown, and Citigroup, which sees a cut as early as June 2025 if financial conditions tighten further.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Fed to signal neutral stance at March FOMC, no rush to cut rates.
- 02Recent market volatility not enough to trigger policy shift.
- 03Consensus among major banks aligns with patient Fed view.
Market implications
A neutral Fed supports USD stability in the near term, with gradual depreciation expected as data evolves. EUR/USD may trade within 1.06-1.10 range ahead of FOMC.
Risks to this view
Downside risk: if labor market weakens sharply, Fed could pivot dovish sooner, boosting EUR/USD. Upside risk: inflation reacceleration could force hawkish tilt, strengthening USD.
Welcome to the MUFG Global Markets Podcast. I'm John Cook, and I'm joined today by George Goncalves, MUFG's Head of U.S. Macro Strategy.
It's Tuesday, March 18th, 2025. Welcome back to the podcast, George. Great to catch up with you, John.
Yeah, you too. Let's get right into it. So in the last Macro to Markets Monthly titled, appropriately, I would argue, the Ides of March, you stressed that market participants should not dismiss the volatility that was brewing at that time in February, and that this challenging backstrop would likely linger well into March.
Certainly turned out to be true, and I would argue an understatement. Given the market's dramatic moves in the past few weeks, are you anticipating the markets, you know, chop around further into a new lower range of presumably like in, I guess, for both stock prices and treasury yields, but perhaps for treasury yields primarily? Do things bounce?
Does risk sentiment bounce? Or do you get some sort of further risk off move? And if so, I guess, how ugly does it get?
Yeah, no, John, I think it's important to take a step back in two things. One, understand where we came from. Two, differentiate between, you know, the move and equities and overall risk assets within.
And even within there, there's credit, which only eventually started to get impacted. And then kind of compare that to what took place in rates. You know, starting with rates first, rates have been on decline.
And we saw the peak in early January with the 10-year at 479, didn't last long at that high levels of rates, got into like a slightly lower range, let's call it 425, 450, and chopped around for quite some time until we finally got the catalyst, which was the uncertainties on the growth outlook, concerns around the tariff policies that were being implemented, which kind of feed off each other and compound each other. But it was really the risk markets that were driving things more so than the rates markets. Rates markets had taken out a lot of the cuts and then put them back in, but it's nothing really new for us.
We're typically, or at least in the rates markets, we're the recipients of the flight to quality type flows. And so all of that kind of matched out. I think what's really unique in this instance is more the actual, you know, the bigger downdraft in equities, you know, for the better part of 18 months, if not longer, it was like a one-way train up into the right.
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