Optionality preserved as cuts still projected – Wells Fargo

Wells Fargo analyzes the March FOMC decision, noting the Federal Reserve kept the fed funds rate at 3.50%-3.75% and avoided signaling timing for future moves. The bank highlights modest upward revisions to PCE inflation and GDP, unchanged unemployment projections, and a median year-end fed funds rate of 3.375%. Wells Fargo still expects two 25 bps cuts in 2026, potentially delayed if inflation risks persist.

Fed holds rates while eyeing future cuts

“As expected, the FOMC left the fed funds rate unchanged at 3.50%-3.75% at its March meeting and was careful not to hint at the timing of future adjustments.”

“Participants seemed hesitant to incorporate looming stagflation risks into the SEP. The median estimate for PCE inflation at year-end rose to 2.7% from 2.4% in December, less than what we were expecting. Meantime, the median estimate for GDP this year was revised up a tenth and the median unemployment rate was unchanged.”

“Wait-and-see mode kept the median view of rates this year unchanged. The median estimate of the fed funds rate at year-end remained at 3.375%, implying one 25 bps cut in 2026, while the median dot for 2027 held at 3.125%. The continued bias toward easing reflects that most Fed officials still view policy as slightly restrictive, even as the median long-run estimate drifted up a tenth to 3.1%.”

“Two more cuts this year remain our base case. We sympathize with the view that the labor market remains on a shaky footing. While renewed inflation concerns generate risk to our call for the FOMC to cut again by June, we still look for two 25 bps cuts this year and acknowledge they just might end up coming a little later.”

“So long as long-term inflation expectations stay anchored, we believe the Fed could still move the fed funds rate further toward neutral in the second half of the year.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)