Fed Holds Rates Steady: Dot Plot and Powell's Press Conference in Focus

The Federal Reserve is widely expected to keep interest rates unchanged for a second straight meeting at tomorrow's FOMC gathering, with markets already having priced in the decision. Attention is now shifting toward the updated dot plot projections and Federal Reserve Chair Jerome Powell's post-meeting press conference for clearer signals on the path ahead.

The revised Summary of Economic Projections will be closely watched, as investors seek direction on future rate cuts. The December dot plot pointed to a median forecast of one rate reduction this year, but growing inflation concerns tied to the ongoing U.S.-Iran conflict could push some Fed officials to revise that projection down to zero. The updated SEP also carries added weight as it may set the tone for an incoming Fed chair, with Kevin Warsh widely expected to succeed Powell ahead of the June FOMC meeting. President Trump has publicly called for immediate rate cuts under Warsh, though current economic conditions make that unlikely in the near term.

Market sentiment has shifted notably in recent weeks. Polymarket data now shows a 30% probability of just one cut this year, while the chances of no cuts at all have risen to 23%. Before the Iran conflict escalated, traders were pricing in as many as three cuts, a figure that has since fallen to a 12% probability.

On the inflation front, core PCE climbed to 3.1% in February, still well above the Fed's 2% target, reinforcing expectations that Powell will strike a cautious tone during his press conference. Market analyst Kathy Lien expects Powell to acknowledge pressures on both sides of the Fed's dual mandate while referencing geopolitical uncertainties in the Middle East. Despite the cautious outlook, equity markets are rallying, the dollar is weakening, and Bitcoin has climbed to around $75,000, suggesting traders are not overly concerned about a more hawkish revision to the dot plot.