FOMC Meeting Preview: So Much for 2% Inflation this Year?

Federal Reserve, FOMC Key Points

• Traders and economists expect the Fed to hold interest rates in the 3.50-3.75% range.
• The central bank could revise up its 2026 forecasts for unemployment (from December’s 4.5%) and Core PCE inflation (from 3.0% to 3.2% or 3.3%) given the war in Iran.
• Unless the Powell expresses clear concern about the economy, traders may look to sell GBP/USD in-line with its downtrend for an eventual test of 1.3200 support.

When is the FOMC Meeting?

The March 2026 FOMC meeting will conclude on Wednesday, March 18 at 2:00 ET.

Fed Chairman Powell’s press conference will begin at 2:30 ET.

What are the FOMC Interest Rate Expectations?

Traders and economists expect the Fed to hold interest rates in the 3.50-3.75% range with high confidence

As of writing, Fed Funds futures traders are pricing in 99% odds of no change to interest rates per CME FedWatch:

Source: CME FedWatch

Even looking out over the next couple meetings, traders are pricing in 75%+ odds of no change to rates through June, so interest rates are highly likely to remain on hold until at least the second half of the year as it stands.

Assuming the Fed leaves rates unchanged as expected, the market’s focus will immediately shift to the central bank’s Monetary Policy Statement, Summary of Economic Projections and Fed Chairman Powell’s Press Conference for insights into the how the Fed is viewing the labor market and inflation dynamics, especially in the wake of the energy price spike from the war in Iran.

FOMC Meeting Forecast

As is his wont, President Trump took to Truth Social to demand an immediate interest rate cut from Federal Reserve Chairman Jerome Powell earlier this week.

Unfortunately for the President, not only will the Fed not deliver an interest rate cut this week, but it’s likely to remain on hold throughout the first half of the year, even when Trump’s handpicked successor Kevin Warsh takes the reins in June, given the conflict in the Middle East and spike in oil prices.

The war in Iran puts pressure on both sides of the Fed’s dual mandate, first by raising energy costs (and thus inflation) and secondly by weighing an already slowing labor market in the second half of the year. With the proverbial “fog of war” impacting the future outlook for the economy, it should be a straightforward decision for Jerome Powell and company to leave policy unchanged this month, while acknowledging the uncertainty in its statement, likely with only one dissent (Trump appointee Stephen Miran).

Where the FOMC meeting gets more interesting for traders is in the quarterly Summary of Economic Projections. The Committee is likely to stick with its projection for one interest rate cut this year (though there’s an outside chance that the median member could flip to no rate cuts this year). At the same time, there’s risk that the central bank revises up its 2026 forecast for unemployment (from December’s 4.5%) a tick, with the Core PCE inflation forecast also at risk of an upward revision (from 3.0% to 3.2% or 3.3%) given it was already running at 3.1% before the outbreak of hostilities in Iran.

While not a gamechanger by itself, these tweaks shift the US economy closer to a “stagflationary” trajectory, a scenario that is every central banker’s worst fear.

As for Chairman Jerome Powell’s penultimate testimony, the former lawyer is likely to deflect any questions about the politicization of the Federal Reserve and whether he plans to stay on the board of the Federal Reserve once his term concludes on May 15.

Warren Buffett once said, “The trick is, when there is nothing to do, do nothing.” At least for the next couple months, expect Powell’s Fed to follow that advice while monitoring incoming economic data and awaiting clarity on the timeline in Iran.

US Dollar Technical Analysis – GBP/USD Daily Chart

Source: StoneX, TradingView

Turning our attention to the charts, GBP/USD is showing an interesting setup heading into the Federal Reserve meeting and Thursday’s Bank of England decision. The pair has been trending lower since peaking in late January, with this week’s bounce taking it back toward the bearish trend line near 1.3400. The 100-day MA also comes in near this level.

Unless the Powell expresses clear concern about the economy, traders may look to sell GBP/USD below that barrier, with room down to test the 78.6% Fibonacci retracement of the November-January rally at 1.3200 late this month. However, a surprisingly dovish outlook could take the pair through resistance to test the 50-day EMA and last week’s high in the upper-1.3400s.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX