All Quiet on the Fed Front

As expected, the Fed left interest rates unchanged this week, at 3.50%-3.75%. The only significant change in the Federal Open Market Committee’s statement, in comparison to January’s statement, was the added line that the “implications of developments in the Middle East for the U.S. economy are uncertain.”

The Fed’s dot plot showed lowered expectations of rate cuts in 2026. The key table is reproduced below:

Out of 19 FOMC participants, 7 project zero rate cuts in 2026, while 7 others project just 1 cut. All but one believes that 0-75bp in cuts in 2026 is appropriate policy.

It’s not surprising the Fed is taking a cautious stance. Inflation remains modestly above target, and tariffs may be putting additional upward pressure on inflation. Oil prices have spiked, though the duration and impact of these price increases are unclear. The Fed may want to wait and see how the Iran conflict evolves, and how the U.S. economy reacts, before taking any action on rates.

Markets, as evaluated by CME Fedwatch’s analyses of futures contracts, also are expecting little movement from the Fed in the coming months. As of this writing markets assess a probability of over 50% that the federal funds will remain unchanged through April of 2027.

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This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument or investment strategy. This material has been prepared for informational purposes only, and is not intended to be or interpreted as a recommendation. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice.