Fed Remains On Hold (As Expected) Amid 'Uncertain Implications' Of War With Iran
Tl;dr: Rates on hold as expected with a hawkish tilt to 'uncertainty' around the Iran war clouding the outlook. The Dot-Plot showed no real change (7 on hold, 12 at least 1 cut in 2026) but inflation expectations surged in the SEP.
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A lot - and we mean a lot - has happened since the last FOMC meeting (Jan 28th).
Oil is up 54% since the last FOMC meeting, bitcoin has tumbled. Gold and stocks are also down notably while the dollar has strengthened...
Both growth and inflation data have outperformed since the last FOMC meeting (but as the chart shows, fears are rising over stagflation as the impact of higher energy prices - and tighter financial conditions - could weigh on growth)...
Rate-cut expectations for 2026 have collapsed since the last FOMC meeting (most notably since the war began) with less than one full cut now priced in...
The market is priced for absolutely nothing to happen today (from a rate change perspective - higher or lower), so all eyes will be on the number of dissents, the new set of SEP (dots) data, and any commentary on the economy and/or the impact of the war.
Expectations are for a continuation of a "hawkish hold" amid heightened uncertainty.
FOMC Statement
Rates remain on hold with one dissent
*FED HOLDS BENCHMARK RATE IN 3.5%-3.75% RANGE IN 11-1 VOTE
*FED SAYS GOVERNOR STEPHEN MIRAN DISSENTS IN FAVOR OF RATE CUT
Fed statement comparison: exactly as expected.
Very little changes, small downgrade to labor market ("some signs of stabilization" to "little changed in recent months"),
...and brief discussion or Iran war ("implications of developments in the Middle East for the U.S. economy are uncertain")
MUFG’s George Goncalves says this is a “neutral” statement from the FOMC.
“The statement tweaks are an attempt at trying to avoid sending any signals while conveying they are on guard for any growth shocks and inflation spillover from the Middle East Conflict.”
Dots: Statement of Economic Projections
- *FED MAINTAINS PROJECTIONS FOR ONE RATE CUT IN 2026, ONE IN 2027
The new dots show 7 Fed members preferring to hold for the rest of the year with 12 preferring at least 1 more cut...
In 2027, there is now only one member who sees a rate-hike...
So, rather interestingly, The Fed left the dots basically unchanged from December but spiked inflation expectations for 2027 for both headline and core to 2.7% (vs 2.4% and 2.5%)
As Bloomberg's Ira Jersey noted:
“Somewhat less obvious in the statement about Middle East led-uncertainty, but the higher inflation expectations in the SEP are certainly a sign the Fed is more concerned about current oil inflation, and less about next year. So a level shift is more or less built into their forecasts."
Now all eyes turn to Powell to see how 'hawkish' this hold is?