Minutes from the March 18-19 Federal Open Market Committee meeting released Wednesday showed a meaningful split among policymakers about the timing of the next rate cut, with five members reportedly arguing for caution about easing too quickly given still-firm services inflation and the unsettled geopolitical environment. The Committee held the federal funds target range steady at 4.25% to 4.50% at the meeting.
Treasury markets had a muted reaction to the disclosure as fed funds futures remained pinned at a 78% probability of a 25 basis point cut at the June 17-18 meeting. The yield on the 10-year Treasury edged up 3 basis points to 3.94% while the 2-year added 4 basis points to 3.42%. Equity markets shrugged off the headlines, with the S&P 500 closing at a record 6,612.
Stagflation Risk Versus Disinflation Confidence
The minutes captured what staff economists characterized as elevated uncertainty about the outlook. Five participants whose names were not disclosed but who almost certainly include Governor Michelle Bowman and Cleveland Fed President Loretta Mester argued that the inflation data had not yet provided sufficient confidence in a sustained return to the 2% target. They preferred to delay any cut until at least the September meeting.
On the other side, a larger group described as nearly all other participants signaled comfort with cutting at the June meeting if incoming data continued the recent trend. They cited the cooling in shelter costs, normalization in core services excluding housing, and the deceleration in wage growth visible in the Q1 Employment Cost Index.
Powell Walks the Tightrope
Chair Jerome Powell speaks at the Economic Club of New York on Tuesday, May 6, in what will likely be his last opportunity to shape market expectations before the FOMC's pre-meeting blackout window begins. Markets will parse his remarks for any signal on whether June is a base case or merely conditional on continued data improvement.
For investors, the March minutes do little to change the broad disinflation thesis but reinforce that the path of policy is more uncertain than the consensus rate-cut narrative suggests. Several Wall Street strategists have begun warning that a Fed pause through July could pressure growth and small-cap equities while supporting the dollar and shorter-duration fixed income.