Fed may hold rates, hint at deeper 2025 cuts: Citi

The US Federal Reserve is expected to keep interest rates unchanged at its upcoming policy meeting, but it may signal deeper rate cuts for 2025 through its dot plot projections, according to Johanna Chua, Managing Director, Head of Emerging Market Economics & Chief Asia Economist at Citi.Chua said the Fed is likely to adjust its rate forecast downward, potentially indicating 75 basis points of cuts in 2025 instead of the previously expected 50 basis points. “We have seen a bit of a weaker dollar, so that even is allowing a little bit of a cost-push pressure on inflation. When you have these two uncertainties of kind of inflation while growth headwinds, I think at this point, the path of least resistance for the Fed is, let us just wait,” she said.

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The Federal Open Market Committee (FOMC) will meet on March 18-19, with markets focused on the dot plot projections rather than immediate policy changes.
The dot plot, published at the end of each Fed policy meeting in March, June, September, and December, provides insight into where Fed policymakers see interest rates over the next several years.Federal Reserve Chair Jerome Powell recently indicated that the Fed is reviewing its communication approach, including potential refinements to the dot plot projections. While these projections are not binding, they serve as a key market guide for future rate expectations.

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Citi forecasts a 0.1% contraction in the US economy in the first quarter, highlighting the case for a more dovish Fed stance. Mixed retail sales data and weak consumer and business confidence are adding to economic uncertainty.

Chua also noted the impact of US President Donald Trump’s new tariff policies, explaining that while tariffs generally support a stronger dollar, broader global uncertainties could counteract this effect. A weaker dollar could benefit emerging markets by making their assets more attractive to investors.