The Fed is likely to hold interest rates steady for a second consecutive FOMC meeting tomorrow as the committee continues to put a pause on more rate cuts. With the Fed rate decision already priced in, the focus will be on the dot plot graph and the Fed Chair Jerome Powell’s press conference for guidance.
The Dot Plot and Powell’s Conference at the FOMC Meeting
Market participants will focus on the revised ‘dot plot’ from Fed officials, which will show their expectations for near-term rate cuts. The current median estimate is one rate cut this year, based on the dot plot from the December FOMC meeting.
This updated Summary of Economic Projections (SEP) will come at a time when market participants are seeking guidance on the Fed’s outlook amid the U.S.-Iran war, which threatens to drive inflation higher. There are concerns that Fed officials could revise their rate-cut projections for this year to zero amid inflation concerns.
The SEP is also key as it could serve as the baseline for the incoming Fed chair, who could succeed Powell just before the June FOMC meeting. U.S. President Donald Trump has made it clear that he wants Fed chair nominee Kevin Warsh to lower rates immediately, but that seems unlikely at the moment.
As CoinGape reported, hopes of a Fed rate cut are fading amid the war in Iran, with the FOMC expected to hold rates steady at tomorrow’s meeting. Furthermore, crypto traders are reducing their bets on how many cuts the Fed is likely to make this year.
Polymarket data show that there is currently a 30% chance that the Fed will make only one cut this year, while the odds of zero cuts this year have climbed to 23% over the past week. Prior to the U.S.-Iran conflict, crypto traders were pricing in as much as three cuts this year. However, the odds for three cuts this year have now dropped to 12%.
Powell Likely To Sound Cautious
Market expert Kathy Lien said that Powell is likely to sound cautious and relatively even in his press conference following the FOMC meeting, considering that both sides of their dual mandate of inflation and job growth are facing pressure. She remarked that the Fed chair will likely allude to the situation in the Middle East and how quickly the Iran war ends.
At the same time, she expects Powell to express concerns about higher prices and higher inflation. It is worth noting that the core PCE inflation rose to 3.1% in February, signaling that inflation remains well above the Fed’s 2% target.
Meanwhile, Lien noted that traders are unconcerned that Fed officials could adjust their rate-cut expectations for this year to zero. She alluded to current market dynamics, with stocks rallying while the dollar faces a sell-off, which would typically be the reverse if market participants were concerned about a downward revision to the dot plot. Bitcoin is also up ahead of the FOMC meeting, rallying to as high as $75,000 yesterday.
