Markets Await Tomorrow’s Fed Meeting

Rates steady ahead of FOMC meeting decision, updated Dot Plot. Treasury yields traded within a 3 bp range today and closed 1-2 bps lower ahead of tomorrow’s Fed policy decision. Housing starts (1501k vs. 1385k est.) and industrial production (0.7% vs. 0.2% est.) fueled a 2 bp rise at the short end of the curve this morning, but strong demand at a $13B auction of 20-year Treasurys led to a gradual reversal later on. Meanwhile, a resumed flight to quality was more apparent in other asset classes: safe-haven Gold hit an all-time high of $3,035 while the NASDAQ and S&P 500 declined 1.71% and 1.07%, respectively.

The Fed is expected to hold rates steady tomorrow. Despite growing concerns about a global economic slowdown, the Fed is unlikely to cut policy rates. Fed Funds futures have the odds of a 25 bp move priced in as 0.8% likely, and further easing is not expected until June or July (with odds having shifted closer to July over the past few days but still favoring June). Market attention will be geared toward the updated Dot Plot, where some officials may have a more aggressive timeline due to trade wars and tariffs. The median Fed Funds rate projection by 2025YE was 3.875% per the most recent Dot Plot released in December.

Conflict in Ukraine inches toward resolution. Today, President Trump held a 90-minute phone call with Russian President Putin to discuss terms of a possible ceasefire in Ukraine. Putin rejected Trump’s 30-day ceasefire proposal and instead agreed to a still-vague, limited ceasefire. A summary of the call published by Russia says the ceasefire applies to attacks on “energy infrastructure” while the US summary says attacks will be paused on “energy and infrastructure” targets. Looking ahead, Putin asked for numerous concessions, including halting the flow of Western weapons to Ukraine, before being open to a full ceasefire. Even though progress was limited, the White House said that permanent peace talks will begin in the Middle East “immediately” and President Trump said the call was “a very good and productive one.” An end to the war in Ukraine could be a positive development for markets, which have been reeling from an escalating global trade war and weaker US economic data in recent weeks.