- The Fed held rates in its March meeting and also decided to slow down the pace of quantitative tightening.
- Uncertainty featured prominently in the Fed’s messaging and forecasts, with a notable impact on its near-term inflation forecasts.
- We expect inflation to remain sticky above the Fed’s 2% target. The descent toward 2% will likely be slow and bumpy.
- With the yield curve becoming more inverted over the past 1 – 2 months, we find the most attractive yield levels on the shorter end. Short-end yields should remain anchored barring massive cuts by the Fed.
- We retain our preference for shorter-duration fixed income products and provide our top recommendations in this article.
What happened - in a nutshell
On 19 March 2025, the Fed unanimously voted to hold rates again (in the 4.25% - 4.50% range). Policymakers also announced another slowdown in the pace of quantitative tightening (QT), specifically by reducing the monthly redemption cap on Treasury securities from $25b to $5b from April 2025 onward (the last change was from $60b to $25b in June 2024).
This meeting was generally viewed as mildly dovish, possibly due to the announcement of a slowdown in QT, as the rate hold had already been widely expected. US equities reacted favourably to the announcements as the S&P 500 was up by +1.1%, while UST yields fell across most tenors. In particular, 2y UST yields (typically seen as policy-sensitive) dropped by over 6bps, while 10y yields fell by over 4bps. With the conclusion of March’s meeting, markets are now pricing in about 2.7 cuts by end-2025, marginally higher than the 2.4 cuts pre-meeting.
Our takeaways from this Fed meeting
In short, we think the recent Fed meeting mainly emphasised two factors: (i) growing uncertainties which could potentially negatively impact key US economic metrics (e.g. inflation and unemployment); and (ii) the Fed’s patient and data-dependent stances.
We see evidence of these factors across the Fed’s policy statement and press conference transcript (Table 1). On one hand, the Fed broadly maintained its outlook on the US labour market and inflation (its dual-mandate), despite concerns over a recent ‘moderation in consumer spending’. On the other hand, a significant change was the heightened recurrence of a theme of ‘uncertainty’ especially about the new Trump administration’s policies, with the word mentioned over 10 times in the press conference.
Powell was careful with his words regarding the prospect of tariffs (a constant headline since Trump took office in January). Some takeaways were that (i) the Fed would consider the net impact of Trump’s policies rather than evaluating them individually; (ii) they may choose to look through tariff inflation if they conclude the YoY figures will fade away after a year; (iii) as a result, they would be more focused on long-term inflation expectations remaining anchored post-tariffs (rather than short-term inflation).
Amidst these uncertainties, the Fed has been careful not to lock itself into future rate cuts. We think back to the analogy used by Powell in December 2024 – that uncertainty was like driving on a foggy night, where it would make sense to slow down (rather than engage in big moves). In this March meeting, they appeared to reinforce this ‘data-dependent’ messaging – that future actions will be driven by how data actually develops, rather than prematurely adjusting policy settings before thoroughly evaluating the effects of Trump’s policies.
Table 1: Summary of Fed policy statement and press conference
| Theme | January | March | Our thoughts |
| Uncertainty | The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain … | <First sentence removed> Uncertainty around the economic outlook has increased. | With growing uncertainty (e.g. over the US economy), the Fed may take a greater wait-and-see approach moving ahead. |
| Labour Market | Labor market conditions have cooled from their formerly overheated state and remain solid. | Labor market conditions are solid … | This reinforces recent data which show the labour market holding up pretty well. |
| Inflation | <No mention of near-term inflation expectations> Longer-term inflation expectations appear to remain well anchored … | Some near-term measures of inflation expectations have recently moved up ... survey respondents ... are mentioning tariffs as a driving factor. Beyond the next year or so, however, most measures of longer-term expectations remain consistent with our 2 percent inflation goal. | Near-term inflation expectations have moved up due to tariffs, but the Fed does not expect a lasting longer-term impact. |
| Consumer Spending | For 2024 as a whole, GDP looks to have risen above 2 percent, bolstered by resilient consumer spending. | Economic activity continued to expand at a solid pace in the fourth quarter of last year, with GDP rising at 2.3 percent. Recent indications, however, point to a moderation in consumer spending following the rapid growth seen over the second half of 2024. Surveys of households and businesses point to heightened uncertainty about the economic outlook. It remains to be seen how these developments might affect future spending and investment. | While economic data remains decent for now, we cannot rule out a slowdown in 2025. |
| Trump Administration | <Not mentioned> | While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their effects on the economic outlook is high. | The Fed will likely maintain its data-dependent approach, rather than act prematurely before fully evaluating the effects of Trump's policies. |
| How the Fed will act ahead | The Committee will assess incoming data, the evolving outlook, and the balance of risks. We’re not on any preset course. | The Committee will assess incoming data, the evolving outlook, and the balance of risks. We do not need to be in a hurry to adjust our policy stance, and we are well positioned to wait for greater clarity. | No change here - the Fed will remain patient, and retain its data-dependent approach. |
| Source: Federal Reserve, iFAST compilations. Data as of 19 March
2025. Data is taken from Fed official policy statement and press conference transcript. Key differences are bolded/underlined by us. |
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Changes to the Fed’s forecasts and dot plot
The Fed also released its quarterly forecasts in its Summary of Economic Projections (SEP), summarised below. Generally, most changes were on shorter-term forecasts (2025 and/or 2026), while long-term forecasts remained unchanged (Table 2). We think the movements in just the shorter-term forecasts suggest the Fed’s awareness of near-term uncertainties while indicating caution about prematurely concluding the overall impact of Trump’s proposed policies.
The most pronounced forecast changes were for real GDP growth and PCE inflation. Notably, only 1 of 19 participants now expect 2025 GDP growth to come in above 2% (previously 13 of 19), though the remaining participants have still put their forecast within the 1% - 2% range, suggesting expectations of a slowdown rather than outright negative growth. For PCE inflation, Fed survey participants now expect inflation to come in higher, within the 2.5% - 3.4% range (previously 2.1% - 3.0%).
(We also highlight that the mean forecasts for end-2025 and end-2026 policy rates moved upward over 10bps each, even though the median was unchanged.)
Fed participants also felt more uncertain about their projections on GDP growth, unemployment, and PCE inflation (compared to uncertainties about their December projections). Furthermore, participants generally felt that their GDP growth and unemployment projections had risks weighted to the downside, while inflation projections had risks to the upside. These again reflect increased uncertainty by the Fed today, with downside risks gradually emerging.
Table 2: Latest Fed projections in SEP
| Median Forecasts | 2025 | 2026 | 2027 | Long-Term | Change |
| Real GDP Growth | 1.7% | 1.8% | 1.8% | 1.8% | Decrease (2025 - 2027) |
| - Prev. projection | 2.1% | 2.0% | 1.9% | 1.8% | |
| Unemployment Rate | 4.4% | 4.3% | 4.3% | 4.2% | Increase (only 2025) |
| - Prev. projection | 4.3% | 4.3% | 4.3% | 4.2% | |
| PCE Inflation | 2.7% | 2.2% | 2.0% | 2.0% | Increase (2025 & 2026) |
| - Prev. projection | 2.5% | 2.1% | 2.0% | 2.0% | |
| Fed Funds Rate | 3.9% | 3.4% | 3.1% | 3.0% | Unchanged |
| - Prev. projection | 3.9% | 3.4% | 3.1% | 3.0% | |
| Source:
Federal Reserve, iFAST compilations. Data as of 19 March 2025. Data is taken from Fed Summary of Economic Projections. |
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A slow and (very) bumpy descent for US inflation
It may seem on the surface that the US inflation outlook is improving. From January 2025 to February 2025, headline CPI inflation (YoY) dropped from 3.0% to 2.8%, while core CPI inflation (YoY) dropped from 3.3% to 3.1%. PCE inflation (YoY) also fell in January 2025 compared to December 2024, based on both headline (from 2.6% to 2.5%) and core (from 2.9% to 2.6%) readings.
Focusing on PCE inflation (the Fed’s preferred metric), the slight decline in YoY figures can be attributed to falling services inflation, mitigated by rising goods inflation (Table 3). Two important service inflation components fell: housing inflation dropped from 4.6% to 4.3%, while healthcare inflation fell from 2.5% to 1.8%. Meanwhile, goods inflation rebounded from -0.1% to 0.6%, helped by a much smaller YoY decline in motor vehicles and parts prices, and non-durable goods prices.
Notwithstanding the recent fall in YoY figures, we think inflation is set to remain sticky above the 2% level.
- For housing inflation (a key driver of services inflation thus far), leading housing indicators have shown signs of coming down from recent peaks (Chart 1). However, we prefer to wait for more concrete data before drawing further conclusions.
- For goods inflation, we see potential near-term risks from tariffs, echoed by the Fed’s inflation forecasts for 2025 mentioned in the previous section. While the Fed has mentioned its willingness to look through tariff inflation where appropriate, we think significant uncertainty remains regarding how tariffs will develop over time (e.g. if Trump decides to further ramp up tariffs over his 4-year tariff), and regarding how longer-term inflation expectations will react to said tariffs.
The road to 2% inflation may be bumpy. Before the recent YoY declines in inflation, headline CPI inflation had previously trended upward for 4 consecutive months until January 2025, while headline PCE inflation had trended upward for 3 consecutive months until December 2024. We also note that by annualising the recent price-index data over 1 month, 3 months, and 6 months, inflation ‘run-rates’ would go above the 2% target (Table 4).
Forward-looking surveys also point toward higher inflation expectations. We look at inflation expectations from two surveys by the University of Michigan and Conference Board and find large increases of +0.4pp (percentage points) to +0.8pp over the past month, ending up well above the Fed’s 2% target for now (Table 5). Furthermore, a survey by NFIB (February 2025) showed a net +32% of small businesses planning to raise prices ahead, well above the +22% reported in January 2025 (and the 20% - 30% range since June 2023).
Finally, longer-term inflation expectations also remain persistent above the 2% level. Apart from the aforementioned U. Mich survey (for 5-10y inflation expectations), we observe that market-based measures like 10y breakevens and 5y5y inflation swaps have recently shown little signs of a sustained decline toward the 2% level (Chart 2). While the Fed has explicitly said it is comfortable that longer-term expectations remain well-anchored, we think that if upcoming data persists at current levels, it may eventually be forced to alter its view on said longer-term expectations.
Table 3: Breakdown of PCE inflation
| Selected Inflation Figures (YoY) | Share of Personal Consumption Expenditures (Jan 2025)* | December 2024 | January 2025 | Change |
| Headline PCE Inflation | 100% | 2.6% | 2.5% | -0.1pp |
| Goods Inflation | 31% | -0.1% | 0.6% | +0.7pp |
| - Durable Goods | 11% | -1.3% | -1.2% | +0.1pp |
| - Motor Vehicles and Parts (part of durable goods) | 4% | -1.8% | -0.1% | +1.7pp |
| - Non-Durable Goods | 20% | 0.6% | 1.6% | +1.0pp |
| Services Inflation | 69% | 3.9% | 3.4% | -0.5pp |
| - Housing and Utilities | 18% | 4.6% | 4.3% | -0.3pp |
| - Healthcare | 17% | 2.5% | 1.8% | -0.8pp |
| Source: BEA, Bloomberg, iFAST compilations. PCE inflation is seasonally-adjusted. Data as of 31 Jan 2025. *We use this share as a proxy for each segment's 'importance' in the PCE basket, though the PCE basket itself is not updated monthly. | ||||
Chart 1: Various leading indicators for housing inflation
Table 4: Inflation data over the past 1m / 3m / 6m not consistent with 2% target
| Inflation | Past 1 month (MoM) | Past 3 months | Past 6 months |
| Headline CPI Inflation (Feb) | 0.44% | 1.14% | 1.36% |
| Core CPI Inflation (Feb) | 0.23% | 0.89% | 1.76% |
| Headline PCE Inflation (Jan) | 0.33% | 0.73% | 1.29% |
| Core PCE Inflation (Jan) | 0.28% | 0.59% | 1.31% |
| Required inflation rate 'consistent' with 2% target* | 0.17% | 0.50% | 1.00% |
| Source: BLS (CPI), BEA (PCE), Bloomberg, iFAST compilations, iFAST estimates. CPI inflation is non-seasonally adjusted, PCE inflation is seasonally-adjusted. Data as of 28 Feb 2025 (CPI) and 31 Jan 2025 (PCE) respectively. *These figures are the inflation rates that would equal to 2% after compounding for a year. | |||
Table 5: Survey expectations have jumped up recently, now well above 2%
| Inflation Expectations | 2 months ago | 1 month ago | Latest Reading | Latest Change |
| U. Mich 12m Expectations* | 3.3% | 4.3% | 4.9% | +0.6pp |
| U. Mich 5-10y Expectations* | 3.2% | 3.5% | 3.9% | +0.4pp |
| Conference Board Median 12m Expectations | 4.0% | 4.2% | 4.8% | +0.6pp |
| Conference Board Average 12m Expectations | 5.1% | 5.2% | 6.0% | +0.8pp |
| Source: University of Michigan, Conference Board, Bloomberg, iFAST compilations. Data as of Mar 2025 (University of Michigan) and Feb 2025 (Conference Board) respectively. *Data is preliminary (finalised in end-March). | ||||
Chart 2: Longer-term inflation expectations persistently above 2%
Yield curve is still inverted – highest yields are at shortest end of curve
The UST yield curve has recently become more inverted in the past 1 – 2 months, likely due to concerns regarding slowing growth, resulting in rising rate cut expectations (Chart 3). At the start of January and February, 6m yields generally lay below those at longer tenors (e.g. 5y and longer). With this growing inversion, short-term yields (under 6m) now stand at close to 4.3%, higher than yields at virtually every other tenor (except 30y yields).
Our tip to bond investors remains unchanged: follow the yield curve. Investors should demand sufficient compensation for duration risks, and for USTs, we think investors are not paid enough to take on additional duration (and in fact are compensated negatively for duration).
Chart 3: Yield curve has become even more inverted recently, highest yields on the shortest end
Final thoughts
While the recent Fed policy rates hold (at 4.25% - 4.50%) was in line with expectations, we note the growing uncertainty surrounding the US economy. We do not rule out rate cuts in 2025, though investors should note a competing inflation factor in the backdrop, with inflation likely to remain sticky above the 2% level. As we highlighted last year, we think rate cuts will not be significant; any rate cuts will likely occur only if economic data deteriorates. Hence, short-end rates should remain anchored at attractive levels (around high-3% to 4% for USD).
We believe investors should get compensated sufficiently for duration risks. Today, investors are getting a negative yield pickup for longer-duration USTs over shorter-duration USTs, which we think greatly bolsters the case for the latter (short-duration). For instance, 6m USTs are yielding about 4.30% today, compared to under 4% for the 3y (3.97%) and 5y (3.95%) tenors.
Assuming 3 rate cuts of 25bps each (roughly in line with market expectations), the Fed Funds Rate would drop to 3.625%, which suggests about a 52bps pickup for 10y USTs over the Fed Funds Rate. We find the 52bps pickup insufficient for the greater duration risks involved as it does not provide enough buffer if yields increase. Put another way, based on this 52bps figure, it would take just a +7bps increase in 10y yields for price losses to wipe out this yield pickup. In today’s environment, we think such increases in yield might not be unlikely, given how sticky inflation could be.
We therefore maintain our recommendation for shorter-duration fixed income holdings, over longer-duration fixed income holdings. This especially applies to ‘ultra-short’ duration products, with maturities or durations of around 0.5y or under, since those are where the most attractive yields currently lie.
Within the short-duration space, we provide some fund recommendations below depending on your currency and duration preferences. We also provide some bond recommendations – these are all in Table 6 below.
We also like short-duration Treasuries, particularly Singapore T-Bills and short-duration US Treasuries. For Singapore T-Bills, investors should consider participating in the fortnightly auctions, either using a competitive bid at their desired yields or non-competitive bids. For US Treasuries, we think a rollover strategy might be useful for investors to take advantage of attractive short-end yields. This would involve buying an existing short-duration US Treasury; after it matures, you can use the proceeds to purchase another short-duration US Treasury. We provide examples of short-term US Treasuries below in Table 7 – some of them are also available on our Bond Marketplace for those looking for more updated live quotes!
For investors looking to add duration to their portfolio, it pays to be selective. The yield curve for corporate bonds may provide better opportunities on the longer end, as it is less inverted / more steep compared to the UST curve seen above. We generally advocate for higher-quality corporate bonds, meaning those with stronger credit profiles, especially investment-grade ones. Investors can consider the recommendations in Table 8 below.
Table 6: Shorter-duration recommendations
| Type of Product | Product |
| Short-Duration Bond Fund | Nikko AM Shenton Short Term Bond Fund |
| Short-Duration Bond Fund | United SGD Fund |
| Ultra Short-Duration Bond Fund | HGIF - Ultra Short Duration Bond Fund |
| Liquidity Fund (SGD) | iFAST SGD Enhanced Liquidity Fund (same-day subscription & redemption, subject to cut-off time) |
| Liquidity Fund (USD) | iFAST USD Enhanced Liquidity Fund (same-day subscription & redemption, subject to cut-off time) |
| Money Market Fund (SGD) | Fullerton SGD Cash Fund |
| Money Market Fund (USD) | Amundi Funds Cash USD |
| Individual Bonds (SGD) | SG Treasury Bills |
| Individual Bonds (USD) | Short-duration US Treasuries (including T-Bills) - Rollover |
| Source: iFAST compilations. | |
Table 7: Short-duration US Treasuries
| Bond Name | Maturity Date (Years to Maturity) | Ask Price | Yield to Maturity (%) |
| T 3.125% 15Aug2025 Govt (USD) | 15 Aug 2025 (0.4) | 99.560 | 4.21% |
| T 3.500% 15Sep2025 Govt (USD) | 15 Sep 2025 (0.5) | 99.651 | 4.23% |
| T 4.250% 15Oct2025 Govt (USD) | 15 Oct 2025 (0.6) | 100.016 | 4.22% |
| T 4.500% 15Nov2025 Govt (USD) | 15 Nov 2025 (0.7) | 100.190 | 4.19% |
| T 4.250% 31Dec2025 Govt (USD) | 31 Dec 2025 (0.8) | 100.049 | 4.18% |
| T 2.625% 31Dec2025 Govt (USD) | 31 Dec 2025 (0.8) | 98.854 | 4.13% |
| T 0.375% 31Jan2026 Govt (USD) | 31 Jan 2026 (0.9) | 96.781 | 4.20% |
| T 4.000% 15Feb2026 Govt (USD) | 15 Feb 2026 (0.9) | 99.849 | 4.17% |
| Source: Bloomberg, iFAST compilations. Data as of 19 Mar 2025. | |||
Table 8: Longer-duration recommendations: be selective
| Type of Product | Product |
| Global Unconstrained Bond Fund | Allianz Global Opportunistic Bond Fund |
| Global IG Credit Fund | Capital Group Global Corporate Bond Fund |
| Asia IG (Hard-Currency) Bond Fund | Manulife Asia Pacific Investment Grade Bond Fund |
| Individual Bonds (SGD) | Read this: SGD Bonds Outlook 2025 – Here’s your Christmas shopping list for bonds |
| Individual Bonds (USD) | Read this: 2025 USD Bond Market Outlook: With Resurgence of Inflation, Bond Yields will Remain Elevated |
| Source: iFAST compilations. | |
Declaration: For specific disclosure, at the time of publication of this report, the analyst who produced this report holds a NIL position in the abovementioned securities. IFPL (via its connected and associated entities) holds positions in T 3.125% 15Aug2025 Govt (USD), T 3.500% 15Sep2025 Govt (USD), T 4.500% 15Nov2025 Govt (USD), T 4.250% 31Dec2025 Govt (USD), T 0.375% 31Jan2026 Govt (USD), and T 4.000% 15Feb2026 Govt (USD).
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