Fed Waller: No Need for Rate Cut in March, but There Could Be Room for 2-3 Adjustments within the Year

Summary:

Federal Reserve Governor Christopher Waller recently indicated that he would not support a rate cut in March, but still anticipates the possibility of two to three rate cuts within the year. The Federal Reserve requires additional economic data to inform its policy decisions, particularly given the recent deceleration in economic growth and the uncertain trajectory of inflation. Premature adjustments to monetary policy could pose risks.

Despite indications of a slowdown in some "soft data" metrics, the U.S. economy has yet to reflect a significant deceleration in "hard data." For instance, the Institute for Supply Management (ISM) data revealed a services PMI of 53.5 in February, surpassing expectations and demonstrating resilience, despite heightened market concerns. Concurrently, the Federal Reserve's Beige Book indicated a modest expansion in overall economic activity since mid-January, although businesses expressed widespread apprehension regarding trade policies and tariff adjustments.

Inflation trends remain a critical consideration for the Federal Reserve's policy decisions. While the overall inflation rate exhibits a downward trajectory, numerous short-term uncertainties persist, particularly concerning the potential for price volatility stemming from the Trump administration's recent tariff policies. The Federal Reserve typically refrains from reacting to one-off price increases; however, recent observations suggest that the impact of tariffs may be more substantial than anticipated, presenting additional challenges for policymakers. Furthermore, market participants are closely monitoring the forthcoming February inflation data, which will serve as a crucial benchmark for future adjustments to the Federal Reserve's monetary policy.

The labor market continues to exhibit overall stability, with the unemployment rate remaining at a low level. However, the most recent ADP employment report indicates that the U.S. economy added only 77,000 jobs in February, significantly below the market consensus of 140,000 and marking the smallest increase since July 2024. This figure may suggest increased caution among businesses regarding hiring practices, and policy uncertainty coupled with a slowdown in consumer spending could become pivotal factors influencing the employment landscape. The Federal Reserve will closely monitor the labor market in the coming months to assess whether a further deceleration is underway.

Overall, the Federal Reserve currently maintains a wait-and-see approach, awaiting further confirmation from economic data. Amidst heightened market uncertainty, investors are closely scrutinizing the Federal Reserve's policy trajectory, with upcoming inflation and employment data likely to serve as critical benchmarks for future monetary policy adjustments.

Beyond Waller's remarks, other Federal Reserve officials have also adopted a more cautious stance. Atlanta Fed President Bostic noted that the U.S. economy is experiencing "incredible volatility," making it difficult to obtain sufficiently clear data for policy decisions in the short term. A range of economic risks exists, including tariffs, trade policies, shifts in consumer confidence, immigration policies, energy policies, tax adjustments, federal spending, and geopolitical uncertainties. The Federal Reserve likely will not have enough information to adjust its policy until late spring or summer, emphasizing the need for patience in the current environment.

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Data Interpretation

The HCOB PMI data released on March 6 indicate:

The HCOB Eurozone Construction PMI Total Activity Index fell from 45.4 in January to 42.7 in February, marking the most pronounced decline in three months.

The latest PMI report indicates that the Eurozone construction sector's PMI dropped to 42.7 in February, signaling an accelerated decline in the industry with a broad-based contraction. Residential construction remains the weakest sub-sector, while commercial building and civil engineering also saw a larger decline.

New orders continued to fall in February, albeit at a slightly slower pace. Weak market demand led to a reduction in new projects, particularly in Germany and France. However, Italy's construction firms saw new orders grow for the third consecutive month, showing relative resilience.

Employment in the construction sector has declined for two consecutive years, with the pace of job cuts accelerating in France and Germany. Italy, however, registered a modest increase in employment. Firms generally indicated that subdued market conditions have curtailed recruitment plans, keeping overall labor demand weak.

Inflationary pressures in the construction sector have eased, with input cost growth slowing to its lowest level since November of last year. Regionally, Germany saw the most significant decline in cost burdens, while Italy's operating costs rose to their highest level in a year.

According to the latest HCOB Eurozone Construction PMI survey, although the decline in new orders has narrowed slightly, overall demand remains weak. Total construction output continues to fall, and employment levels remain in contraction. These factors collectively reflect the ongoing malaise in the construction sector. While the employment sub-index does not detail the scale of job cuts, this trend provides some clues for the upcoming Eurozone unemployment rate data, indicating that the labor market in the construction industry remains under pressure.

Looking ahead, overall business confidence in the Eurozone construction sector has improved slightly but remains in negative territory. Firms expect the industry to continue contracting over the next year, with high uncertainty in the French and German markets. Optimism in Italy has shown a modest recovery. Despite the ECB's pause on interest rate cuts, the high interest rate environment is likely to continue exerting pressure on the construction sector.

Overall, the Eurozone February PMI data indicates an intensified recession in the construction sector, with weak demand and employment declines as the main drags. The future trajectory of the industry will continue to be influenced by policy adjustments, market demand recovery, and changes in the financing environment.

Eurozone February PMI

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Owen Li

Forex

Key Fundamental Factors:

US Trade Policy:

President Trump temporarily exempts automakers in Mexico and Canada from tariffs for one month.

He is also considering removing tariffs on certain agricultural products from both countries.

Australian Economic Data:

Trade surplus rose to 5,620 million in January (higher than expected).

Exports increased 1.3%, reaching an 11-month high, while imports fell 0.3%.

Building permits surged 6.3%, marking the second month of growth.

GDP growth in Q4 2024 was 0.6% (higher than expected).

US Economic Factors:

The US Dollar (DXY) is at 104.30, struggling due to concerns about slowing growth.

US job market slowdown: ADP reported 77K new jobs in February (far below the 140K forecast).

Traders await Friday’s Nonfarm Payrolls (NFP) report, showing 160K job gains.

US Manufacturing PMI dropped to 50.3 (slightly below expectations).

China’s Economic Impact:

China’s Services PMI rose to 51.4, signaling steady economic activity.

China cleared $530 billion in bad loans and plans to prioritize real estate recovery in 2025.

China targets 5% economic growth for 2025 while stabilizing the stock and property markets.

Geopolitical Risks:

China threatens a strong response to Trump’s tariff hikes, which may affect the Australian dollar due to Australia’s trade reliance on China.

RBA Deputy Governor Andrew Hauser warns that global trade uncertainty is at a 50-year high, which could impact business and investment confidence.

Key Takeaway for Traders:

AUDUSD shows short-term bullish momentum but faces resistance near 0.6380 and 0.6408.

The US Dollar remains under pressure, but economic data (NFP report) could shift sentiment.

Keep an eye on China’s trade policies and US tariffs, as they could influence AUD’s strength.

AUDUSD – D1 Timeframe

The price recently broke below the previous lows on the daily timeframe chart of AUDUSD, followed by a quick retracement. The retracement has now reached the supply zone and is expected to come under bearish pressure soon. Let’s take a look at the price action on the lower timeframe, though.

AUDUSD – H4 Timeframe

The price action on the 4-hour timeframe chart of AUDUSD falls perfectly in line with the bearish sentiment already described above. In addition to the supply zone occurring at the 88% Fibonacci retracement level, there is also a confluence from the SBR pattern, as highlighted in the 4-hour timeframe chart attached above.

Analyst’s Expectations:

Direction: Bearish

Invalidation- 0.64109

Target- 0.62313

Source: ACTIONFOREX

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Justin

Economic

Forex

The Euro rose above 1.08 level and hit the highest in four months on Thursday after ECB’s widely expected decision to cut interest rates by 25 bp to 2.5%, in its sixth rate cut since June.

The central bank stated that monetary policy is becoming meaningfully less restrictive and left the door open for further easing, repeating their standard phrase that future action will be depending on the incoming economic data.

The single currency holds in sharp bullish acceleration for the fourth consecutive day, underpinned by weakening dollar and the most significant factor, signals that Germany’s next government is to create a 500 billion euro fund to boost military and revive economic growth of the EU’s largest economy which is in recession for the second year.

The latest sharp rally (EURUSD is on track for the biggest weekly gain since the third week of March 2020) has significantly improved technical picture on daily chart however, overstretched momentum and stochastic indicators suggest that bulls may start losing traction, which would prompt partial profit-taking.

Near-term outlook is expected to remain positive, as the action is underpinned by strongly favorable fundamentals and bullish technical studies, with likely scenario of limited dips (to be ideally contained by 200DMA / broken Fibo 50%) to offer better levels to re-join bullish market for extension towards 1.0872 (200WMA) and 1.0969/1.1000 targets (Fibo 76.4% of 1.1214/1.0177 / psychological) in extension.

Res: 1.0853; 1.0872; 1.0900; 1.0969
Sup: 1.0800; 1.0725; 1.0695; 1.0630

Source: ACTIONFOREX

To stay updated on all economic events of today, please check out our Economic calendar

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Warren Takunda

Economic

However, a gradual recovery is forecast in the second half of 2025 as global risk sentiment stabilises and market positioning supports a rebound.

NZD) remained under pressure in February, marking its lowest monthly close since 2009 as global risk sentiment and U.S. dollar strength weighed on the currency

“February was another tough month for the NZD, closing at 0.5598 against the USD, its weakest level in over a decade,” said David Croy, Senior Strategist at ANZ. “While intra-month volatility saw some temporary gains, the broader trend remains negative.”

The NZD/USD hit a low of 0.5516 during the month, but analysts noted that it did not breach pandemic-era lows of 0.5470. Against other G10 currencies, the Kiwi was the second-worst performer, reflecting broader weakness in non-USD currency pairs.

Key Drivers of NZD Weakness

A combination of U.S. economic resilience, higher U.S. interest rates, and ongoing geopolitical uncertainty has kept demand strong for the U.S. dollar, limiting any meaningful recovery for the NZD.

“Markets are currently being driven by fear and uncertainty rather than long-term fundamentals,” said Croy. “Despite expectations that tariffs might hurt the U.S. economy in the long run, short-term sentiment continues to favour the greenback.”

New Zealand’s economic outlook remains soft, further weighing on the currency. Low local interest rates following the Reserve Bank of New Zealand’s (RBNZ) 50 basis-point rate cut have made the Kiwi less attractive. “The RBNZ leadership change has been largely ignored by markets, as continuity in policy is expected,” noted Croy.

Outlook and Forecasts

ANZ Research has revised its mid-year NZD/USD target to 0.55, citing persistent downside risks but anticipating a gradual recovery towards fair value of 0.62 by year-end. The Kiwi’s movement will remain highly sensitive to global risk sentiment and shifts in U.S. Federal Reserve policy.

“The currency is currently trading near the lower bounds of our fair-value model,” said Croy. “While that suggests it is cheap, without a fundamental catalyst, a sustained rally remains difficult.”

Exchange Rate Forecasts (End of March 2025):

NZD/USD: 0.55GBP/NZD: 2.20EUR/NZD: 1.82

Source: Poundsterlinglive

To stay updated on all economic events of today, please check out our Economic calendar

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Warren Takunda

Economic

European financial markets have rallied sharply and German borrowing costs have soared after the country’s prospective leaders announced a historic deal to loosen its “debt brake” rule to boost spending on defence.

The yield – in effect the interest rate – on 30-year German government bonds rose by about 25 basis points to 3.08% in its biggest daily increase since October 1998.

The Dax 30 index, which tracks the largest German companies, rose by 3.6%, powered by industrial stocks. Share prices also leapt in London, Paris and Milan amid investor hopes that a massive boost in European spending on defence and infrastructure would kickstart the region’s ailing economy.

Defence stocks have gained sharply in recent weeks as world leaders scramble to piece together the funding for a vast increase in military expenditure amid mounting concern over Donald Trump’s commitment to European security.

The EU outlined a plan on Tuesday to unlock almost €800bn (£670bn) for defence spending, while the UK government said last week it would raise its spending from 2.3% of GDP to 2.5% by 2027, two years earlier than planned, worth an additional £6bn a year.

Shares in Rheinmetall, the German automotive and arms manufacturer, rose by 7.2% on Wednesday and have rocketed by 99% this year. Britain’s BAE Systems has rallied by 41% so far this year, Italy’s Leonardo is up 73% and Paris-listed Thales has risen by 78%.

The euro rose by 1.5% against the US dollar to about €1.08. The pound also gained against the dollar on a day of dramatic moves in markets, as investors also reacted to the US commerce secretary, Howard Lutnick, suggesting a deal could “probably” be reached to de-escalate Trump’s trade war with Canada and Mexico.

Some analysts said there was a danger of the dollar losing its “safe-haven” status among global investors as Trump’s trade wars rattle the world’s largest economy. “The speed and scale of global shifts is so rapid that this needs to be acknowledged as a possibility,” said George Saravelos, global head of currency research at Deutsche Bank. European Markets Soar as Germany Moves to Lift ‘Debt Brake’ and Raise Defence Spending_1

European Markets Soar as Germany Moves to Lift ‘Debt Brake’ and Raise Defence Spending_1

In a sea change for economic policy after years of sticking to tough rules on government debt, Germany’s chancellor-in-waiting, Friedrich Merz, said on Tuesday that defence spending above 1% of GDP would be exempt from the country’s debt rule.

Agreed with the centre-left Social Democrats, who are expected to form a coalition with Merz’s Christian Democratic Union (CDU), the plan also includes the creation of a €500bn fund to finance spending on Germany’s infrastructure over the next 10 years. Any lifting of the debt brake must command a two-thirds majority in the Bundestag.

In response, Germany’s biggest construction and engineering companies posted sharp share gains on Wednesday. Cement maker Heidelberg Materials jumped by 17%, industrial services firm Bilfinger leapt by 18% and construction group Hochtief advanced by 15.5%. Engineering and steel firm ThyssenKrupp rose by 13.4%.

Echoing the words of Mario Draghi, the former European Central Bank president during the eurozone debt crisis, Merz said Germany would do “whatever it takes” on defence. Under pressure to raise spending on defence from 2.1% of GDP last year, analysts at Morgan Stanley said the overall size of the German plan could reach more than €1tn.

Holger Schmieding, chief economist at Berenberg Bank, said the plan amounted to a “really big bazooka” with potential to transform Europe’s largest economy. “They are a fiscal sea change for Germany,” he said.

“The extra room for defence spending sends a clear signal to Vladimir Putin and Donald Trump as well as to Germany’s European friends that Germany is serious about defending itself and helping Ukraine.” European Markets Soar as Germany Moves to Lift ‘Debt Brake’ and Raise Defence Spending_2

European Markets Soar as Germany Moves to Lift ‘Debt Brake’ and Raise Defence Spending_2

Described as “one of the most historic paradigm shifts in German postwar history” by economists at Deutsche Bank, the deal will effectively sideline the constitutional debt brake, or schuldenbremse, for spending on defence.

Introduced in 2009 by Angela Merkel after the financial crisis, the rule, often restricting annual federal borrowing to 0.35% of GDP, had been symbolic of Germany’s strict approach to tax and spending policy.

City analysts said sidelining the rule would be a gamechanger for the country’s economy amid big challenges from collapsing industrial output, weakened by slack demand and competition from Chinese electric vehicle manufacturers.

“Germany was facing a potential growth trajectory heading towards zero over coming years. [The defence and infrastructure boost] catapults growth prospects closer to 1.5-2% for 2027 onwards,” analysts at Bank of America wrote in a note to clients.

The debt-fuelled stimulus package comes with a cost, reflected in a rise in 10-year bond yields to almost 2.7%. However, German borrowing costs still remain significantly lower than in the US and the UK, where yields have reached more than 4%.

Source: Theguardian

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Warren Takunda

Cryptocurrency

Bitcoin is predicted to “blast off” in three weeks as global liquidity trends turn in favor of crypto and risk assets.

New X analysis from Andre Dragosch, European head of research at asset management firm Bitwise, predicts global money supply hitting new all-time highs.

3-week countdown to BTC price comeback

A new Bitcoin price tailwind is brewing as US dollar strength drops to its lowest levels since the start of November last year.

The US Dollar Index (DXY), which measures dollar strength against a basket of trading partner currencies, is threatening to drop below 104, data from Cointelegraph Markets Pro and TradingView shows.

For Dragosch, the implications are already clear.

“If this trend continues like that, global money supply will soon reclaim new all-time highs,” he wrote, describing DXY as the “most bullish chart you will see today.”

“You know what that means for BTC…” Bitcoin Gets March 25 'Blast-Off Date' as US Dollar Hits 4-Month Low_1

US Dollar Index (DXY) 1-day chart. Source: Cointelegraph/TradingView

The greenback has yet to benefit substantially from the new US government administration, while trade tariffs continue to weigh on risk-asset sentiment.

Analyst Colin Talks Crypto eyed a rebound in total M2 money supply for clues about a new Bitcoin breakout.

As Cointelegraph reported, Bitcoin remains highly sensitive to global liquidity trends, with bull markets closely tied to phases of expansion.

“The rally for stocks, bitcoin, crypto is going to be epic,” Colin Talks Crypto told X followers this week, reiterating a previous prediction.

“March 25th is the approximate date.” Bitcoin Gets March 25 'Blast-Off Date' as US Dollar Hits 4-Month Low_2

Risk assets vs. global M2 money supply chart. Source: Colin Talks Crypto/X

US Bitcoin reserve odds pass 70%

Bitcoin and altcoins could well receive a much-needed boost ahead of time.

March 7 will see US President Donald Trump host the first White House Crypto Summit, with Commerce Secretary Howard Lutnick suggesting that the event should yield confirmation of a strategic Bitcoin reserve.

While other sources say the move will be delayed due to a lack of congressional support, some longtime crypto market participants say the reserve is inevitable.

“The Strategic Bitcoin Reserve is coming,” Professional Capital Management founder and CEO Anthony Pompliano summarized on X.

“Everyone wants digital sound money.”

In a market note on March 5, Matt Hougan, chief investment officer at crypto index fund and ETF manager Bitwise, forecasted that the reserve would go ahead and consist “entirely” of BTC.

The latest data from prediction service Kalshi gives a 71% chance of a Bitcoin reserve this year — the highest-ever odds. Bitcoin Gets March 25 'Blast-Off Date' as US Dollar Hits 4-Month Low_3