Aniket PujariFederal Reserve officials are likely to be reluctant to cut interest rates this year but equally hesitant to show their hand at this week’s meeting, according to Goldman Sachs analysts. Central bankers participating in the Federal Open Market Committee meeting that concludes Wednesday will update their “dot plot” projections of interest rates for the next several years. During the last revision in December, the committee’s median dot indicated two rate cuts this year, assuming quarter percentage point increments. While there’s considerable speculation over what the FOMC will signal now, Goldman suggests that officials won’t want to add to the tariff-induced uncertainty the markets are currently enduring. Thus, they could signal the resumption of rate cuts even if their conviction is relatively low. “Both elevated policy uncertainty and the likelihood of higher tariffs and higher inflation this year mean that the normalization cuts that FOMC participants penciled into the dot plot at the end of last year now look further off,” Goldman economist David Mericle said in a note. “But we suspect that the Fed leadership would nevertheless prefer for the median 2025 dot to continue to show two cuts this year to avoid adding to recent market turbulence, even if this might be somewhat awkward to explain as a modal forecast.” Stocks have been in flux this year largely due to uncertainty over which direction President Donald Trump will take when it comes to tariffs. A decision on more broad-based duties than the ones currently implemented will come in early April, with administration officials reluctant to provide more clarity as negotiations continue. While Goldman says it sees the most likely path still for the Fed to indicate two cuts despite the uncertainty, current market pricing is even a bit more aggressive. Fed funds futures trading pointed Monday afternoon to about a 50-50 chance of three cuts before the end of the year, according to the CME Group’s FedWatch . Markets expect the first cut will come in June, with essentially a zero implied probability of a move Wednesday. Mericle said the most likely path to rate reductions this year is for the Fed to deploy “insurance cuts” to brace against economic weakness. “The bar will be higher than last time because inflation is higher and inflation expectations have risen, but the risks posed by larger and broader tariffs are also considerably more serious,” he wrote. Fed Chair Jerome Powell on March 7, in his final comments before this week’s meeting, echoed cautious tones recently from policymakers, indicating the FOMC will be in no rush to cut as it watches events unfold.
