The Federal Reserve maintains interest rates as expected; the dot plot indicates there may be one more rate cut this year.

How does the AI · Fed Dot Plot indicate the interest rate path for next year?

Cailian Press, March 19 (Editor: Niu Zhanlin) Beijing time Thursday at 2 a.m., against the backdrop of escalating conflicts in the Middle East and soaring oil prices, the Federal Reserve’s Federal Open Market Committee (FOMC) released its latest interest rate decision. In line with market expectations, it kept the federal funds rate target range unchanged at 3.5% to 3.75%, marking the second consecutive meeting without changes.

After the rate decision was announced, the three major U.S. stock indexes rose slightly, spot gold gained $10 in the short term, and the dollar index remained volatile.

The FOMC statement showed that the committee approved the rate decision with an 11-1 vote. The outlook for the economy was little changed, but the committee slightly raised its expectations for economic growth and inflation for 2026.

Despite ongoing uncertainties, officials reiterated that multiple rate cuts could still occur in the future. The closely watched “dot plot” indicates that most members expect one rate cut this year and another in 2027, though specific timing remains unclear.

Among the 19 FOMC members, 7 expect no rate cuts this year, an increase of one from the December forecast last year. While there is significant disagreement over the interest rate path in the coming years, the median projection suggests further rate cuts in 2027, with the federal funds rate stabilizing around a long-term level of approximately 3.1%.

The statement also mentioned that the conflict in Iran, which erupted three weeks ago, has added additional uncertainty. The conflict and its impact on the Strait of Hormuz have disrupted global oil markets and may keep inflation above the Fed’s 2% target. The statement noted: “The development of the Middle East situation remains uncertain in its economic impact.”

Fed Governor Stephen Milam again voted against the decision, advocating for a 25 basis point rate cut amid rising concerns about worsening employment conditions. Previously, in January, Christopher Waller, who also supported a rate cut, voted to keep rates unchanged this time.

Before the conflict erupted, markets expected two rate cuts this year, with a small chance of a third. However, with oil prices rising and a series of strong inflation data (which had already appeared before the energy shock), markets now expect at most one rate cut in 2026.

In the latest economic projections, Fed officials expect GDP to grow 2.4% this year, slightly higher than the December forecast of 2.3%; for 2027, economic growth is projected at 2.3%, an upward revision of 0.3 percentage points from previous estimates.

Officials also raised their inflation expectations for this year, projecting the PCE price index (including overall and core) at 2.7%. However, they believe that as tariffs and war impacts gradually fade, inflation will return to near 2% in the coming years. Despite recent softening in non-farm payroll data, policymakers still expect the unemployment rate to be 4.4% by year-end.

The Fed’s decision to hold steady also occurs amid complex political circumstances. U.S. President Trump continues to pressure Powell and his colleagues to cut rates. Earlier this week, Trump criticized Powell for not calling a special meeting to implement easing policies, despite high inflation and uncertainties caused by the war.

On the other hand, this Thursday’s meeting, chaired by Powell, may be his second-to-last during his term. His term ends in May, and Trump has nominated former Fed Governor Kevin Warsh as his successor. Warsh previously favored lower interest rates but has not publicly stated his latest policy stance.

Adding further complexity are judicial factors. U.S. Department of Justice officials, including Washington D.C. federal prosecutor Jenny Piro, have issued subpoenas to Powell, requesting evidence related to the Fed’s multi-billion dollar headquarters renovation project. Powell refused to cooperate, accusing Trump of using the subpoena to pressure the Fed and force a rate cut. A judge supported Powell, dismissing the subpoena and agreeing that the move aimed to “harass and pressure Powell.”

However, Piro has indicated she will appeal. Meanwhile, Republican Senator Tom Tilles said he would block Warsh’s nomination in the Senate Banking Committee until the Powell controversy is resolved. If the lawsuit continues into after May, Powell may remain in office until Warsh is confirmed.