The Federal Reserve will keep rates at 3.5%-3.75% when it meets March 18. Markets price in less than 20% chance of a cut.
Jerome Powell remains chair despite Kevin Warsh’s nomination to replace him. The handoff won’t happen until May at the earliest.
The Fed held rates steady at its January 28 meeting after three cuts in 2025. Two governors dissented, advocating another 25-basis-point reduction.
Weak Retail Sales Boost Cut Odds
December retail sales came in flat Tuesday. Economists expected 0.4% growth.
Treasury yields fell on the miss. Bankrate now projects three rate cuts totaling 0.75 percentage points in 2026, with the first likely in June.
“Uncertainty about the economic outlook remains elevated,” the Fed said January 28. “The Committee is attentive to the risks to both sides of its dual mandate”.
Powell’s balancing act: A softening labor market argues for cuts. Inflation above 2% argues against them.
Warsh Nomination Faces Senate Hurdles
President Donald Trump nominated Warsh on January 29. The former Fed governor helped steer policy through the 2008 crisis [web:89].
Republican Sen. Thom Tillis said he’ll oppose the pick until the Justice Department resolves its investigation of Powell. Tillis sits on the Senate Banking Committee.
With 13 Republicans and 11 Democrats on the panel, one GOP defection could stall the full Senate vote. Standard Chartered noted Warsh would have just one vote among seven on the Board of Governors.
If confirmed, Warsh could likely count on support from Fed Governor Christopher Waller and possibly Michelle Bowman. Stephen Miran, Trump’s pick for the Council of Economic Advisers, would also align with Warsh’s policy stance.
Fiscal Stimulus Complicates Fed Path
Tax cuts from the One Big Beautiful Bill Act of 2025 could inject $100 billion into the economy. That’s good for growth, bad for inflation.
JPMorgan Chase & Co. (NYSE: JPM) economist Daniel Nguyen projects two rate cuts in 2026, arriving late in the year. “Whenever you have that kind of money being injected into the economy, you’re going to see higher GDP growth, but at the same time higher inflation,” he told Bankrate.
Larger tax refunds should fuel consumer spending over the next few months. But faster growth keeps the Fed on hold longer than markets currently expect.
The Fed’s next scheduled meeting after March is April 29-30. No February meeting is on the calendar.
