The published minutes of the March FOMC meeting confirmed the market's worst fears: the U.S. Federal Reserve has no clear plan to exit the high interest rate regime. Instead, the regulator opted for a strategy of 'passive observation,' hoping that the economy will adapt on its own to the cost of money not seen in the last twenty years.
Decision-making paralysis. The main conclusion from the minutes is the lack of consensus on the conditions for lowering the rate. While the Fed previously relied on specific inflation figures, the conditions have now become vague: 'confidence in a sustainable move towards the goal.' It seems that the Fed itself does not know how long it will take to overcome price pressure. This decision-making paralysis creates a vacuum filled with volatility in the debt market.
Ignoring banking risks. It is particularly concerning how easily the Committee overlooked the problems of regional banks. The minutes mention 'system resilience,' yet they discuss the need to expand emergency liquidity lines. There is a contradiction: if the system is resilient, why prepare 'lifebuoys'? The Fed continues to shift responsibility to supervisory bodies, ignoring the fact that its high-rate policy is draining capital from the banking periphery.
Growth without quality: The productivity trap. As in Miran's speeches, the minutes pay a lot of attention to long-term productivity growth. However, a critical look at the data shows that the current GDP growth is supported by government spending and credit consumption, rather than a real technological breakthrough. The Fed risks mistaking temporary statistical noise for new economic reality, which will lead to a fatal mistake—holding 'restrictive' rates for too long.
The March minutes are a document that fixes not the force, but the fear of making a mistake. Key conclusions:
Rates will remain high until signs of a deep recession appear. The Fed would prefer to 'over-tighten' the economy than allow a second wave of inflation.
The corporate sector is awaiting a series of defaults. This is especially true for companies with low credit ratings that need to refinance in the second half of 2026.
Gradual abandonment of QT. Most likely, the Fed will start to slow down balance sheet reduction sooner than lowering rates to prevent a liquidity collapse.
The Fed is stuck in reactive mode: it no longer leads the market but only reacts to the fires it itself provokes with its indecisiveness.