Morgan Stanley predicts that the Federal Reserve (Fed) and the Bank of Japan (BoJ) will keep their rates unchanged in March. The Federal Open Market Committee (FOMC) is expected to maintain its policy rate, with Chairman Powell likely reiterating a patient approach towards rate cuts.
The forecast for the Fed funds rate is 3.875% by the end of 2024 and 3.375% by 2025. The FOMC is expected to acknowledge rising risks to GDP growth, which may influence a more cautious stance later in the year.
Bank Of Japan Policy Outlook
The BoJ also plans to hold its rates steady, reflecting global economic uncertainty. Governor Ueda is likely to address concerns regarding global growth and inflation, suggesting a need for caution before any policy adjustments.
Morgan Stanley’s expectations for the Fed and BoJ reflect a broader pattern of central banks treading carefully amid shifting economic pressures. By choosing to leave rates untouched in March, policymakers appear to be prioritising stability over abrupt shifts. Powell is expected to reinforce this message, outlining a preference for waiting until more clarity emerges before pursuing any rate reductions.
The projected path for US interest rates, with a gradual reduction to 3.875% by the end of the year and a further decline in 2025, suggests that policymakers may be anticipating slower inflationary pressures ahead. However, with risks to GDP growth becoming more pronounced, there is a possibility that market participants could begin reassessing expectations, particularly if economic data weakens further. At the moment, the Fed’s messaging appears firmly focused on measured adjustments rather than immediate moves.
Market Expectations Moving Forward
Meanwhile, Japan’s central bank is also set to adopt a wait-and-see approach. With global conditions remaining uncertain, Ueda is expected to highlight potential risks in upcoming communications. Given his cautious stance, traders who have been speculating on imminent policy changes may need to temper their expectations. For now, any adjustments to Japan’s rate policy seem unlikely without stronger shifts in economic data or inflation trends.
Looking ahead, investors will need to pay close attention to statements from policymakers. Even without immediate changes, the tone of future communications could provide valuable signals. Any indications of increasing concern about growth or inflation trends might prompt a shift in market positioning, particularly in interest rate-sensitive sectors. With decisions from both central banks reinforcing a patient approach, the weeks ahead could see markets reacting more to forward guidance than to actual policy shifts.
