Fed holds interest rates, indicates 50bps cut by end of year

Just ahead of the FOMC’s decision, Mohamed El-Erian discussed the Fed’s interest rate narrative on the DAS main stage

March 19, 2025 04:40 pm

Allianz chief economic officer Mohamed El-Erian | DAS 2025 New York by Mike Lawrence for Blockworks

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In Washington, the Federal Open Market Committee (FOMC) has just wrapped its March policy-setting meeting. As expected, central bankers left interest rates unchanged.

What’s more interesting, though, is that most committee members are still expecting two 25-basis point rate cuts before the end of the year.

It’s the first summary of economic projections released so far this year. Central bankers also lowered growth expectations for 2025; they currently expect real GDP in 2025 to increase by 1.7%, down from their December projection of 2.1%. They also increased their expectations for inflation, calling for PCE to hit 2.7% by the end of 2025.

Mohamed El-Erian, one of our favorite Forward Guidance Podcast guests, spoke on the main stage of DAS this morning just ahead of the FOMC’s decision.

The real pivot is going to come in the form of Fed-speak, he said.

Committee members are going to have to shift the narrative from “we’re cutting rates as a result of good news” (inflation falling) to “we’re cutting rates because of bad news” (growth prospects are declining).

“They’re going to have to somehow do this while not worrying people,” El-Erian said.

Bitcoin and ether were trading higher on Wednesday, but pared some gains after the Fed’s decision was announced. Bitcoin was up 1.3% over the day at 2:30 pm ET, while ether was trading 7% higher. Stocks responded well to the Fed’s decision, trading 0.6% and 0.9% higher, respectively, at that time.

The Atlanta Fed’s GDPNow model published a new Q1 2025 estimate Tuesday. The model is now calling for GDP to decline 1.8% in the first three months of the year, up from an estimate of -2.1% earlier in the month.

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