March 16, 2025

QuickTakes

ECONOMIC WEEK: March 17–21

In the week ahead, lots of economic data will be packed into the first two days, followed by the FOMC meeting decision and Fed Chair Jerome Powell's press conference on Wednesday. The FOMC is widely expected to hold rates steady at 4.25%-4.50%, though the tone of Powell's presser may depend on how February's batch of economic indicators released on Monday and Tuesday turns out. Barring much weaker-than-expected data, we anticipate Powell will continue to suggest that the economy is in decent shape and does not require additional monetary policy support. However, he's likely to maintain the Fed's dovish bias to lower interest rates if the labor market cools significantly.

The federal funds rate is currently just above the unemployment rate, as it was during the late 1990s soft landing (chart). That suggests to us that the policy rate is roughly neutral.

The absence of an interest-rate move does not mean that Fed officials will be sitting on their hands, though. We think there's a good chance that the FOMC will suspend Quantitative Tightening (QT) at this meeting, or at least signal that it will do so at its May 6-7 meeting. That's because despite this weekend's Continuing Resolution to appropriate funding for the government through September, the debt-ceiling issue is still unresolved. The Treasury General Account (TGA) at the Fed has declined by more than $300 billion over the past month, as the Treasury Department must use extraordinary measures to fund the government deficit (chart).

Should the debt ceiling be lifted or removed, the Treasury would replenish the TGA, causing bank reserve balances to fall and potentially upsetting the financial markets. By ending QT early, the Fed would be limiting future market volatility. It would be a positive for the markets but wouldn't move the needle much, in our opinion.

Here's more on what to expect in the week ahead:

(1) Retail sales. Our Earned Income Proxy rose 0.4% m/m in February, driven by a 0.3% increase in average hourly earnings (chart). While January’s deep freeze weighed on spending, the weather was also comparatively bad in February. Consumer spending (Mon) may have bounced back but could be soft for the second straight month. On an inflation-adjusted basis, spending will have to compete with a 0.5% m/m increase in CPI goods (not seasonally adjusted).

(2) Industrial production. Aggregate weekly manufacturing hours ticked up slightly in February, suggesting a similar uptick in industrial production (Tue) (chart).

(3) Regional manufacturing. Regional business surveys from the New York Fed (Mon) and Philly Fed (Thu) might indicate whether this year's rolling recovery in manufacturing is holding up or waning under Trump 2.0 tariff uncertainty. The average of those two regional M-PMIs tends to correlate with the national ISM M-PMI (chart).

(4) Import & export prices. Prices paid and received by manufacturers have been rising. Margins received by wholesalers and retailers fell 1.0% m/m in the February PPI, suggesting that tariff effects are already squeezing margins. That may show up in rising import & export prices (Tue), which would suggest further upside for goods inflation (chart).

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