The Morning Edge: Fed Stays Cautious Amid Economic Uncertainty

With economic risks mounting and inflation still above target, the Federal Reserve sees no urgency to change interest rates. New York Fed President John Williams, speaking in the Bahamas, called the current policy stance “modestly restrictive” and appropriate for now, given the strong job market and ongoing price pressures. Williams noted that rate cuts may be necessary in the future but emphasized the need to wait for more data before taking any action, particularly given the uncertainty caused by changing government policies.

Chicago Fed President Austan Goolsbee echoed this caution, warning that President Donald Trump’s tariffs could fuel inflation and complicate the outlook. Meanwhile, the Fed is also slowing the pace of its balance sheet reduction, having already trimmed over $2 trillion in holdings. Williams described this as a “natural next step” to ease pressure on money markets and manage government financing needs, underscoring the Fed’s careful balancing act in an unpredictable economic landscape.

Data
The US Federal Reserve's balance sheet declined to $6.755 trillion as of March 19, down from $6.759 trillion the previous week, reflecting a measured contraction in liquidity. While still historically elevated, the balance sheet remains well below its April 2022 peak of $8.97 trillion, when pandemic-era stimulus drove unprecedented expansion. Over the long term, the Fed’s balance sheet has averaged $3.82 trillion since 2002, with a record low of $712.8 billion in January 2003. The recent decline aligns with the Fed’s ongoing quantitative tightening efforts, aimed at reining in excess liquidity and containing inflation, though the pace of contraction remains modest.

Markets
Overnight
US stocks indices S&P 500 and Dow Jones eked out slight gains on Friday, recovering from earlier losses after US President Trump hinted at flexibility on upcoming tariffs, easing fears about their potential impact. Trump noted that his top trade official would meet with China’s counterpart next week and reiterated plans to use tariffs to narrow the US trade deficit. However, corporate earnings concerns weighed on sentiment, with FedEx slumping 6.45% after cutting its full-year forecasts due to US industrial weakness, while UPS fell 1.61%. Nike led declines among Dow components, dropping 5.46% after forecasting a sharper-than-expected fourth-quarter revenue decline. 

The benchmark 10-year US Treasury yields snapped a four-day losing streak on Friday, rising 1.9 basis points to 4.252%, as investors balanced tariff uncertainties against expectations that the US Fed will keep rates steady for now. The 30-year bond yield climbed 3.9 basis points to 4.5948%, while the 2-year yield, which reflects Fed rate expectations, dipped 0.9 basis points to 3.948%. The mixed movements highlighted the market’s cautious stance as it navigates trade risks and monetary policy outlooks.

The US dollar strengthened on Friday, gaining ground against the euro and yen as investors turned cautious ahead of an approaching tariff deadline. The dollar index rose 0.33% to 104.13, while the euro fell 0.32% to $1.0816. Against the Japanese yen, the dollar gained 0.37% to 149.33, as President Donald Trump hinted at flexibility regarding new tariffs set to take effect early next month. The moves reflected a mix of relief and uncertainty as markets weighed potential trade developments against broader economic risks.

Brent crude oil prices edged higher on Friday, poised for a second consecutive weekly gain, as new US sanctions on Iran and OPEC+’s latest output plan fuelled expectations of tighter global supply. Brent crude settled at $72.16 per barrel, up 0.22% on the day, reflecting growing optimism about a balanced market despite lingering economic uncertainties. The gains underscored the market’s focus on supply constraints amid shifting geopolitical and policy dynamics.

Day’s Ledger
Economic Data:

• India March Provisional Manufacturing and Services PMI Data
• RBI to hold $10 billion dollar/rupee 3-year buy/sell swap auction
• Eurozone March Provisional Manufacturing and Services PMI Data
• US March Provisional Manufacturing and Services PMI Data

Corporate Actions:

• Matrimony.Com board to consider dividend
• TVS Holdings board to consider dividend
• TIL Ltd board to discuss fund raising plans

Policy:

• SEBI Board Meeting
• US FOMC Member Bostic Speaks   

Tickers

• ALEMBIC PHARMACEUTICALS reported that the USFDA inspection at its API-III facility in Karakhadi concluded with zero Form 483 observations.
• ALLIED BLENDERS AND DISTILLERS expanded capacity by 1.5 million bulk liters at its Rangapur plant in Telangana, adding to its 60 million bulk liter licensed capacity for FY25.
• APOLLO HOSPITALS’ subsidiary Apollo Healthco completed the acquisition of an 11.2% stake in Keimed from promoter Shobana Kamineni for ₹6.25 billion.
• DAM Capital Advisors has received an administrative warning and deficiency letter from SEBI.
• GODREJ PROPERTIES acquired 10 acres of land in Bengaluru, with an estimated revenue potential of ₹25 billion from the upcoming development.
• IDBI BANK notified that the RBI has imposed a penalty of ₹3.63 million for lapses in due diligence related to foreign exchange transactions.
• IRCON INTERNATIONAL disclosed that Conarch Associates has filed a ₹1.59 billion claim against the company in an ongoing arbitration case.
• LARSEN & TOUBRO board has approved a borrowing plan of ₹120 billion and elevated Subramanian Sarma, head of the energy vertical, as the new Deputy Managing Director.
• MAHINDRA & MAHINDRA announced a price hike of up to 3% across its SUV and commercial vehicle range, effective April 1.
• NCC Ltd has secured a Letter of Acceptance for a ₹14.80 billion project awarded by Bihar Medical Services & Infrastructure Corporation.
• NMDC informed that the Federation of Unions has directed its members to resume full duties.
• OLA ELECTRIC commenced pan-India deliveries of its S1 Gen 3 electric scooter series.
• RAYMOND Ltd approved an investment of up to ₹650 million in redeemable preference shares of Ten X Realty East, a step-down wholly-owned subsidiary.
• RELIANCE INDUSTRIES’ subsidiary Nauyaan Tradings has completed the acquisition of a 74% stake in Nauyaan Shipyard from Welspun Corp for ₹3.83 billion.
• UCO BANK opened its qualified institutional placement (QIP) issue, aiming to raise ₹20 billion.

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