The
"I'm looking for similarities between this statement and the series of statements that followed the tariff announcements of April 2025," said Gary Pzegeo, co-chief investment officer at CIBC Private Wealth. "The Fed was willing to wait for policy certainty back then and I would like to see if they strike a similar chord. I'm also curious to see if there are any nods to disruptions in market functioning given recent attention on private credit."
With oil prices rising, inflation impacts will follow, so "expectations for further rate cuts may be pushed toward 2027," he said.
Even before the hostilities in Iran, Pzegeo noted, a March cut was not expected.
"Expect to see some important revisions in the upcoming Summary of Economic Projections," said Jeffrey Roach, chief economist for LPL Financial. He sees uncertainty on inflation and labor, which he expects the Fed to highlight in the post-meeting statement.
"The Iran war, the spike in oil prices and the potential for a surge in inflation complicate expectations for additional interest rate cuts," said Federated Hermes Chief Market Strategist Phil Orlando. "The Fed has plenty of room to reduce rates to a terminal value of around 3% over time."
Still, he noted, "the spike in oil prices might elevate investors' fear that inflation could sustain a higher level. A logical conclusion would argue that policymakers could shift gears to hike rates."
The oil price shock should "be more pronounced in the short term," said
While lower-income consumers will feel the most pain from energy price shocks, she said, the spikes in energy prices "are not as likely to be as macroeconomically impactful as they once were."
The Fed will acknowledge that risks to inflation have increased on account of the Iran war, while stressing the need for stable long-term inflation expectations, said BNP Paribas Chief U.S.
"We see a significant, underappreciated tail risk that the FOMC moves toward a 'symmetric policy bias,' i.e., either a rate hike or a cut is roughly equally likely to follow. However, our base case is that policymakers delay this change for now."
Still BNP's base case is rates on hold all year as "economic resilience and high, sticky inflation" direct policy. "The oil price rise increases our short-run conviction in this view, but leaves us with greater, bidirectional risk over the medium term."
Wells Fargo Chief Economist Tom Porcelli, senior economists Sarah House and Michael Pugliese noted stagflation risks have increased since the FOMC last met. "Higher inflation and a weaker labor market is the FOMC's worst nightmare as it puts the dual mandate in tension."
The Fed will hold rates, as "the conflict in Iran has a highly uncertain outlook, with oil prices gyrating wildly in response to the uncertainty," they said. Additionally, the labor market remains "lukewarm and muddling along and there has been no further progress toward 2% inflation over the inter-meeting period."
The statement should "highlight additional uncertainty in the outlook due to the Iran conflict," while the phrase "some signs of stabilization" in the labor market can be "tweaked to be a bit more pessimistic," Wells economists said.
Officials will boost inflation projections in SEP through 2027, while lowering growth expectations, while the dot plot will hold, they said.
"The FOMC faces the challenge of updating its economic and monetary policy outlook amid significant uncertainty, driven by both the ongoing Gulf war and concerns about the labor market's resilience to AI," said Paolo Zanghieri, senior economist at Generali Investments.
But "we do not foresee substantial changes to economic projections," he said.
"Until we see real stabilization in energy prices, the Fed simply cannot move," said Shawn Severson's, CEO and co-founder of Water Tower Research. "The weak February jobs numbers would normally be all the justification needed to cut rates. But you don't ease into an inflation shock."
Severson said he's "watching carefully … the potential early stage of a stagflationary setup: a weakening jobs market running straight into an oil-driven price shock that hasn't even fully worked its way through the economy yet."
A rate hike to tamp inflation would crush "an already-weakening labor market," he said, and a rate cut to support jobs would spike inflation.
Morgan Stanley economists expect the Fed to hold, although they see three voters dissenting.
"We expect the updated projections to show higher headline inflation, softer growth, but an unchanged dot plot," they said.
"The key question is how the Fed will respond to an oil price shock," they added. "We have high conviction that the Fed will not respond with rate hikes, or risks of rate hikes."
