Good morning! The Federal Reserve will release its interest rate decision.

The Federal Open Market Committee (FOMC) will announce its latest interest rate decision on the afternoon of March 18th local time (early morning of March 19th Beijing time). The market widely expects the Fed to keep the target range for the federal funds rate unchanged at 3.5% to 3.75%. However, market attention is focused on Chairman Powell’s subsequent remarks.

Why is the probability of a rate cut low?

Analysts believe that the primary reason the Fed remains on hold is due to multiple contradictions and uncertainties facing the U.S. economy. The Iran-related conflict has caused oil prices to fluctuate, raising concerns about inflation climbing again. Coupled with complex signals from the labor market, this has made the Fed cautious in its monetary policy decisions. Data from the CME FedWatch Tool shows that even before the conflict erupted, markets did not expect a rate cut at this meeting. At that time, expectations were for a rate cut starting in June or later, with at least one cut expected this year. But the potential impact of the conflict on oil prices and inflation has completely changed market expectations. Currently, futures pricing indicates that the Fed may only consider easing policy around September or October, with only one rate cut likely this year.

Crui Xiao, senior economist at Pictet Wealth Management in the U.S., told Securities Times that the Fed will keep the policy rate in the 3.5%–3.75% range at this Wednesday’s meeting. Regarding voting, the two directors who supported a rate cut at the last meeting, Miran and Waller, may continue to support a cut, and Bowman might also support one. The policy statement is expected to acknowledge that the Iran conflict poses risks to both of the Fed’s dual mandates. The latest dot plot probably won’t show significant changes; the median still indicates one rate cut in 2026 and 2027, with the long-term neutral rate remaining at 3%.

Xiao said that given the short-term inflation risks from the Iran conflict and the limited drag on economic growth amid a relatively stable macro environment, the Fed originally expected rate cuts in June and September might be delayed. However, the overall stance remains slightly dovish, and concerns about a continued weakening labor market make the Fed’s potential position more dovish than current market expectations.

Inflation risks warrant concern

In fact, the recent surge in oil prices caused by Middle East conflicts and the subsequent resurgence of inflation in the U.S. are key concerns for many investors.

Latest U.S. inflation data shows that inflation remains moderate. In February, the unadjusted Consumer Price Index (CPI) rose 2.4% year-over-year, and the unadjusted core CPI increased 2.5% YoY, in line with market expectations and previous figures. The January Personal Consumption Expenditures (PCE) Price Index rose 0.3% month-over-month, matching expectations, with a 2.8% YoY increase, slightly below the expected 2.9%. However, February data has not yet reflected the recent oil price increases.

Aside from the rate decision, the Fed’s Economic Projections (SEP) and the closely watched dot plot are also market focuses, but most analysts believe there will be no significant changes this time. The Fed may slightly raise its outlook for economic growth and inflation, but the interest rate path is expected to remain largely unchanged.

Xiao noted that some officials have lowered expectations for rate cuts due to inflation concerns, while others have raised expectations due to recent softening in labor market data. The SEP might show an overall rise in core inflation, slower economic growth, and higher unemployment. If the dot plot shows a median of zero rate cuts, or if Powell mentions persistent inflation driven by tariffs or oil prices, the Fed might consider raising rates again. Recent core PCE data remains elevated, and oil shocks could delay the expected inflation decline mid-year. Despite some technical factors, the recent weak employment report could again raise concerns about the labor market.

Political pressures overshadow the Fed

This rate decision is also under political influence.

U.S. President Trump has long pressured the Fed and Powell to cut rates. On March 16, during a media appearance, Trump again criticized Powell, stating that now is the best time to cut rates and accusing Powell of should convene a special meeting to discuss a rate cut. Paradoxically, the Trump administration has also created obstacles for Powell’s succession: Trump nominated Kevin Woorh to succeed Powell in May, but the nomination is blocked by investigations into Powell’s handling of the Fed’s headquarters renovation. North Carolina Republican Senator Thom Tillis has explicitly stated he will oppose the nomination until the investigation is resolved.

Recent court documents suggest Powell might remain as a director until January 2028 after his term ends on May 15, provided the criminal investigation against him continues. Powell’s private lawyer, in a meeting with U.S. prosecutors on January 29, conveyed four points: the President lacks the Senate votes to confirm a new Chair; Powell believes Fed independence prevents him from being forced out; if the investigation continues, he will not leave his director position after his term; if the investigation is dismissed, “different outcomes may be possible.”

The Department of Justice described this as coercive behavior toward the U.S. prosecutor. Powell can continue serving as a director (until January 2028) and retain voting rights on the FOMC, potentially through the midterm elections and even into Trump’s second term. Powell’s team denies any resignation in exchange for dropping the case, calling such accusations “baseless coercion.”

Industry analysts believe that if the Fed chooses to stay on hold this time, it reflects a balancing act amid multiple risks and economic signals. Future monetary policy will still depend on inflation trends, geopolitical developments, and the fundamentals of the U.S. economy. In the short term, the Fed is likely to maintain a cautious, hawkish stance.