The US Federal Reserve is set to announce its interest rate decision
on Wednesday, with expectations that rates will remain unchanged.
Market expectations
Markets are pricing in a near-zero probability of a rate cut at the current meeting or any upcoming meeting.
Futures suggest the first possible cut could occur in September or October, and even then, it is expected to be a one-off reduction this year.
Powell and the FOMC's stance
Federal Reserve Chair Jerome Powell and his colleagues must contend with the fallout from the war, inflation risks, and the state of the labor market.
The Fed is likely to maintain its target range for the federal funds rate between 3.5% and 3.75%.
“The decision is almost certain – a hold on rates at the March meeting – but any hints from Powell about the future path will be crucial,” said Pei Chen Lin, chief investment strategist at Russell Investments. The Impact of War and Oil Prices
Even before the war, investors weren't expecting a rate cut in March, but the attacks and their impact on oil prices and inflation changed the calculations.
While the Fed typically weathers oil shocks, markets are closely watching Powell's signals, especially since this meeting is his penultimate one as Fed Chair.
Read also: Oil extends gains, Brent crude above $103 a barrel at settlement
Messages from within the Fed
Bank of America analysts explained that Powell's ability to guide markets depends on whether his comments are perceived as reflecting the committee's consensus rather than his personal opinion.
Former Fed Vice Chair Roger Ferguson told CNBC that he expects the committee to be "cautious" in its statement, noting that the focus should be on inflation rather than unemployment. He added, "I'm more concerned about rising inflation.
The Fed is targeting 2%, but it's been far from that goal for years."
The Fed will also release an update to its economic projections, including a "dot table" reflecting its members' interest rate expectations. Most observers anticipate only minor changes, with growth and inflation estimates likely to be raised slightly compared to the December update, but the outlook for interest rates will still point to one cut this year.
