Regarding rate cuts, the Federal Reserve releases its latest interest rate decision!

What are the considerations behind the AI dot plot lowering interest rate hike expectations?

Early morning on March 19, Beijing time, the Federal Reserve announced its March monetary policy meeting decision. As expected by the market, at this meeting, the Fed held interest rates steady for the second consecutive time, maintaining the federal funds target range at 3.5% to 3.75%.

However, some Fed officials voted against the decision. Fed Governor Stephen Milkan again voted against, believing that a 25 basis point rate cut should be implemented.

In fact, the outcome of this rate decision was already anticipated by the market. Investors are more focused on how the Fed will assess the future US economy and inflation trends amid rising international oil prices due to conflicts in the Middle East, and how the dot plot indicates the future monetary policy path.

In its statement, the Fed said that US economic activity has been expanding at a steady pace. Job growth remains slow, with unemployment rates remaining relatively unchanged in recent months, and inflation remains high.

Regarding the potential impact of Middle East tensions on the US economy, the Fed only stated that “the development of the Middle East situation is uncertain for the US economy, and the Committee will closely monitor risks related to its dual mandate.” Meanwhile, the Fed aims to achieve maximum employment and a 2% long-term inflation rate, but uncertainty about the economic outlook remains high.

At the post-meeting press conference, Fed Chair Jerome Powell said that the current Middle East tensions create uncertainty about the US economy, and that rising energy prices in the short term have increased inflationary pressures.

Regarding the future monetary policy path, the latest dot plot from the Fed indicates that a rate cut is expected once this year. Previously, the market had expected two rate cuts this year.

Powell admitted that some decision-makers have revised their rate cut expectations from two cuts to just one. He emphasized that the rate path forecast depends on economic performance; if inflation does not improve, there will be no rate cuts.

Along with the March decision, the Fed updated its US inflation forecast. The median PCE inflation rate is expected to reach 2.7% in 2026, up from 2.4% in the December forecast. The median core PCE inflation rate, excluding food and energy, is also projected to be 2.7%, higher than the 2.5% forecast in December.

Influenced by the Fed’s hawkish signals, on March 18 (local time), the US stock markets declined sharply. At the close, the Dow Jones Industrial Average fell 1.63% to 46,225.15 points. The S&P 500 dropped 1.36% to 6,624.70 points. The Nasdaq declined 1.46% to 22,152.421 points.

Currently, the US economy faces a dual dilemma. On one hand, inflation remains relatively high. Data shows that in January, the US personal consumption expenditure (PCE) price index rose 0.3% month-over-month and 2.8% year-over-year. Excluding food and energy, the core PCE price index increased 0.4% month-over-month and 3.1% year-over-year, reaching the highest level since March 2024.

On the other hand, the US labor market is weakening. In February, non-farm employment fell sharply by 92,000 jobs, and the unemployment rate rose to 4.4%. Additionally, January’s non-farm job gains were revised from 130,000 to 126,000, and December’s gains from 48,000 to a decline of 17,000.

This situation adds more uncertainty and challenges to the Fed’s future monetary policy adjustments.

Source: Financial Times Client

Reporter: Liu Yanchunzi

Editor: Yang Zhiyuan