US Fed Policy: Will Donald Trump’s tariff chaos pinch Jerome Powell? Interest rate to ‘dot plot’—5 indicators to watch

US Fed Policy: The US Federal Reserve is all set to announce its monetary policy decision on March 19, after a two-day review meeting to deliberate on the central bank’s benchmark interest rate and the state of the US economy. This is the second policy verdict by US Fed Chair Jerome Powell-led Federal Open Market Committee (FOMC) for 2025 and holds significance after US President Donald Trump’s tariff hikes escalated a potential global trade war.

According to Wall Street analysts, Trump’s tariff policies also threaten US economic growth, and US inflation can likely quicken due to rising price pressures in the next few months. Traders see the US Fed lowering borrowing costs by at least two 25-basis point cuts by December, with the first expected in July.

“The US Fed chair, while suggesting future rate trends, always says that it will depend on ‘ incoming data and evolving outlook’. This time, the emphasis will be on the evolving outlook since the present data is stable. Still, the evolving outlook is totally unpredictable thanks to the trade war,” said Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

“The US Fed will likely keep the rate unchanged in its decision. The 2024 December dot plot indicated two rate cuts in 2025, down from four in September. A slowing US economy might warrant more cuts. Still, the Fed is unlikely to indicate so since it will be in a tight spot if the US economy moves towards stagflation, which is a likely scenario,” added Dr V K Vijayakumar.

1.US inflation

Last week, US Department of Labor data showed the consumer price index (CPI) rose 2.8 per cent annually in February, below Wall Street estimates. On a monthly basis, US inflation rose 0.2 per cent last month, the smallest gain since October, after accelerating by 0.5 per cent in January. In the 12 months through February, core CPI increased 3.1 per cent. That was the smallest gain since April 2021 and followed a 3.3 per cent rise in January. The core CPI rose at a 3.6% per cent annualized rate in the three months to February.

2.US economic growth

US economic growth slowed in the fourth quarter, and the loss of momentum appears to have persisted early this quarter amid cold temperatures and concerns that tariffs will hurt spending through higher prices. GDP estimates for the January-March quarter rang.e from a 2.4 per cent pace of contraction to a 1.3 per cent growth rate

US gross domestic product (GDP) increased at a 2.3 per cent annualized rate last quarter after accelerating at a 3.1 per cent pace in the July-September quarter, the Commerce Department’s Bureau of Economic Analysis (BEA) said in its second GDP estimate for the fourth quarter. 

The accompanying statement, Chair Jerome Powell’s press conference and the central bank’s Summary of Economic Projections – including the dot plot – will be parsed for clues regarding the timing of the Fed’s next rate move.