The Federal Reserve holds steady; the dot plot maintains its median forecast of one interest rate cut this year.

Topic: Federal Reserve Interest Rate Decision Approaches, Expected to Remain Steady

The Federal Reserve officials, as expected, decided to hold steady, maintaining the median expectation for one rate cut this year while acknowledging increased uncertainty due to the conflict in the Middle East.

In the policy statement, officials stated, “The impact of developments in the Middle East on the U.S. economy remains unclear. The Committee is closely monitoring the risks it faces in achieving its two missions of maintaining price stability and promoting maximum employment.”

The Federal Open Market Committee (FOMC) voted 11 to 1 to keep the target federal funds rate in the range of 3.5% to 3.75%. Governor Stephen Moore dissented, calling for a 25 basis point rate cut.

This marks the second consecutive meeting where officials have kept rates unchanged, despite significant changes in the economic backdrop since the last meeting. In January, policymakers expressed growing confidence in the stabilization of the unemployment rate. Shortly thereafter, several officials indicated a preference to maintain rates unchanged for a longer period to further lower inflation.

However, with the release of a disappointing non-farm payroll report for February, the outlook for the labor market has darkened. Starting February 28, the U.S. and Israel’s attacks on Iran led to a surge in global oil prices, further threatening inflation trends and potentially harming growth and employment.

Federal Reserve officials removed language from the January statement regarding signs of stabilization in the labor market, replacing it with the observation that the unemployment rate “has not changed much in recent months.”

According to the pricing of federal funds futures, investors reacted to the war by lowering their expectations for rate cuts in 2026, but still believe there will be one cut before the end of the year.

In the latest rate forecasts, officials continue to expect one rate cut in both 2026 and 2027 (by 25 basis points each). No policymakers indicated a preference for rate hikes this year.

In updated economic forecasts, policymakers slightly raised their expectations for economic growth in 2026 from the 2.3% predicted in December to 2.4%, while keeping the forecast for the unemployment rate at the end of 2026 unchanged at 4.4%.

Officials also raised the inflation forecast for 2026 from 2.4% to 2.7%. Notably, they expect the core inflation rate to also rise to 2.7%.

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Editor: Ding Wenwu