Fed FOMC meeting begins this week with rate decision due Wednesday March 18

The Federal Reserve's Federal Open Market Committee begins its two-day meeting on Tuesday March 17, with Chair Jerome Powell scheduled to announce the rate decision and hold a press conference on Wednesday March 18. The Fed Funds rate currently sits at 3.75 percent, and no one expects a change at this meeting. What markets are actually watching is the updated Summary of Economic Projections, specifically whether policymakers revise their rate cut expectations downward in response to oil prices that have jumped above $104 per barrel since US strikes on Iran's Kharg Island.

The timing is genuinely awkward for the Fed. The central bank spent most of 2024 and early 2025 engineering a soft landing, bringing inflation down without triggering a recession. That work now faces a new threat that has nothing to do with domestic monetary policy. A war-driven oil price shock is the kind of external event the Fed cannot control and cannot easily accommodate without risking a re-anchoring of inflation expectations.

What the dot plot is expected to show

The dot plot, published four times a year, shows each committee member's projection for where the Fed Funds rate will be at the end of each calendar year. The December 2025 dot plot showed a median expectation of two rate cuts in 2026, which would bring the Fed Funds rate to 3.25 percent by year-end. The question for Wednesday is whether that median shifts to one cut, or whether some members move their dots to show no cuts at all this year.

A shift from two cuts to one cut would be a meaningful signal without being a dramatic one. It would tell markets the Fed is watching the oil price situation carefully and is not willing to commit to accommodation until it has more clarity on whether the energy shock is temporary or sustained. A shift to zero cuts projected for 2026 would be more aggressive and would likely produce a sharp equity sell-off, particularly in rate-sensitive sectors like real estate and utilities.

The inflation data the Fed is working with right now

The most recent Personal Consumption Expenditures inflation reading, released February 28, showed headline PCE at 2.5 percent year-over-year and core PCE, which excludes food and energy, at 2.7 percent. Both numbers are above the Fed's 2 percent target but close enough that the committee had been moving toward a gradual easing posture. The problem is that PCE data has a lag. The February reading does not capture any of the oil price spike that began in late February when the US-Iran conflict started.

The March PCE reading, which will not be published until late April, will be the first data point that fully captures the oil price increase. That means Powell and the committee are making their Wednesday projections partly on the basis of their own internal models rather than confirmed data. The Federal Reserve Bank of Dallas's energy price pass-through model estimates that a sustained $20 per barrel increase in oil adds approximately 0.4 percentage points to annual PCE inflation over six months. A $30 increase, which is roughly where prices stand relative to the Fed's baseline assumptions, would add closer to 0.6 percentage points.

Growth signals complicating the picture

The Fed's challenge is that inflation is not the only concern. Growth is also wobbling. The Atlanta Fed's GDPNow model, which tracks real-time economic activity, was showing Q1 2026 GDP growth at 1.4 percent as of its most recent update on March 14. That is down from 2.3 percent at the start of the year. Consumer confidence surveys have also weakened, with the University of Michigan's preliminary March reading dropping to 57.9, the lowest level since November 2022.

This combination, rising energy prices alongside slowing growth, is what economists call stagflation risk. The Fed has no clean tool to address it. Cutting rates would support growth but risk pushing inflation higher. Holding rates keeps inflation anchored but does nothing to support an economy that is already decelerating. Powell's press conference language on Wednesday will be closely parsed for any indication of how the committee is weighing those two risks against each other.

What markets are pricing in ahead of the decision

The CME FedWatch tool showed as of Sunday that futures markets are assigning a 97 percent probability of no rate change at Wednesday's meeting. The first meeting with meaningful cut odds is July 2026, where the probability of at least one cut sits at 44 percent. That probability has fallen from 61 percent two weeks ago, before Brent crude crossed $100 per barrel.

The 10-year Treasury yield was trading at 4.41 percent on Friday, up from 4.18 percent at the start of March. That move reflects the market's inflation reassessment rather than any change in Fed policy. If Powell's press conference comes across as more hawkish than expected, the 10-year yield could push toward 4.6 percent, which would increase borrowing costs for mortgages and corporate debt immediately. The Mortgage Bankers Association reported last week that the average 30-year fixed mortgage rate had already risen to 7.12 percent, the highest level since October 2023.