At 2 a.m. Beijing time on the 19th, the Federal Reserve will announce its interest rate decision. In March, it is highly likely to choose to &#34;hold steady,&#34; maintaining a wait-and-see approach between the inflation risks driven by the Iran war and weakening employment data. The policy leans towards &#34;continuing to pause or delaying rate cuts,&#34; rather than raising rates again. The market is highly focused on the Summary of Economic Projections (SEP) and Chairman Powell's press conference wording.
The current situation puts the Federal Reserve in a dilemma. Soaring energy prices are putting further upward pressure on inflation, which is already above the 2% target, while the sharp decline of 92,000 in February's non-farm payrolls has reignited market concerns about stagflation, forcing the committee to seek a balance between its dual mandate.
Currently, the market focus has shifted from &#34;when to cut rates&#34; to &#34;whether to cut rates&#34;. Morgan Stanley believes that due to weak employment and the Fed's ability to see through the one-time impact of oil prices on inflation, the risks of monetary policy exhibit a clear asymmetry: an increase in inflation will delay rate cuts rather than rate hikes, but a decline in employment will lead to rate cuts.
In the latest developments, the dovish signals from several officials have been strengthening. Both Goldman Sachs and Morgan Stanley expect the number of dissenting votes at this meeting to increase from two in January to three. Meanwhile, energy prices have led the market to reprice: the expectation for the number of rate cuts this year has decreased from two to one, with the timing of the first rate cut pushed back to the fourth quarter.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/808f824d-6d0e-4523-b766-ac12fc393f73.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/808f824d-6d0e-4523-b766-ac12fc393f73.png"/>
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/b3651bd3-e99b-4732-aba4-e8ca398d752a.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/b3651bd3-e99b-4732-aba4-e8ca398d752a.png"/>
<h2>Holding Steady Becomes a Foregone Conclusion, Focus Shifts to Powell's Wording</h2>
The Federal Reserve will keep the target range for the federal funds rate unchanged at 3.50% to 3.75%, which is almost undisputed among major institutions. Morgan Stanley, Goldman Sachs, and Bank of America all hold the same expectation in their latest reports, with differences only in the pace of subsequent rate cuts.
Morgan Stanley maintains its expectation of two rate cuts (25 basis points each) in June and September this year. The bank believes that due to weak employment in February and the Fed's ability to see through the one-time impact of oil prices on inflation, the risks of monetary policy exhibit a clear asymmetry:
When inflation is above target levels, rising oil prices are more likely to prompt the Fed to delay rate cuts—or increase the magnitude of rate cuts when they do occur—rather than to raise rates.
Bank of America points out that given the heightened geopolitical uncertainty, this meeting is not expected to provide clear forward guidance. The bank's Federal Reserve observers wrote:
<blockquote>
&#34;Powell's ability to guide the market depends on the extent to which the market believes his comments represent the consensus of the committee rather than personal views. Even setting aside this constraint, Powell faces significant challenges this time.&#34;
</blockquote>
As Powell's term will expire in May, the market is expected to be extra cautious in interpreting his statements.
BeiChen Lin, Senior Investment Strategist at Russell Investments, stated:
<blockquote>
&#34;The decision at this meeting is almost a foregone conclusion—maintaining interest rates. However, any signals Powell provides regarding the future path of interest rates will be crucial. From a broader perspective, the fundamentals of the U.S. economy remain robust, which means the threshold for further rate cuts may be quite high.&#34;
</blockquote>
<h2>Iran War and Softening Employment Raise Stagflation Concerns Testing Dual Mandate</h2>
The macro backdrop for this monetary policy meeting is exceptionally complex, with the Federal Reserve facing opposing pressure signals.
On the inflation front, since the outbreak of the Iran war, prices for energy, metals, and agricultural products have risen sharply. The Fed's preferred inflation measure, the core PCE year-on-year growth rate, has reached 3.1%, with a month-on-month increase of 0.4%, showing almost no substantial signs of retreat recently, significantly deviating from the 2% policy target.
In the labor market, February's non-farm payrolls fell by 92,000, undermining previous expectations of market stabilization and likely prompting sharp questions about stagflation at the post-meeting press conference. The relatively stable initial jobless claims data provided some comfort, and JOLTS data also showed some recovery, but the overall situation still appears weak.
Fed Governor Waller clearly stated, the current rise in energy prices is unlikely to trigger persistent inflation, which is a question policymakers may need to temporarily set aside; however, he remains highly attentive to the labor market, especially noting the large-scale impact of AI on employment.
Former Fed Vice Chairman Roger Ferguson expressed greater concern about inflation risks in an interview with CNBC: &#34;The Fed has deviated from the 2% target for many years, and over time, the credibility of this target will inevitably be questioned.&#34;
<h2>Limited Changes Expected in Dot Plot, SEP Focuses on Inflation and Unemployment Forecasts</h2>
The SEP will be released simultaneously after this meeting, with institutions expecting overall changes to be limited, but directional adjustments are already evident.
Goldman Sachs expects that the median forecast in the dot plot will remain largely unchanged, showing one rate cut each in 2026 and 2027. The firm believes that some committee members may adjust their rate cut expectations earlier due to the latest labor market data, while others may push back the timing of rate cuts due to inflation risks, with both roughly offsetting each other.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/131821af-a035-4188-a6cc-e577afcafd87.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/131821af-a035-4188-a6cc-e577afcafd87.png"/>
In terms of specific changes in forecasts:
Goldman Sachs expects the overall inflation forecast for 2026 to be revised up by about 0.6 percentage points to 3.0%, and the core inflation forecast to be revised up by about 0.2 percentage points to 2.7%; GDP growth forecast to be revised down by about 0.2 percentage points to 2.1%; and the unemployment rate forecast to be revised up by about 0.2 percentage points to 4.6%
The impact direction of the above corrections on interest rate forecasts is largely offsetting.
Morgan Stanley believes that the Federal Reserve will continue its past practice of &#34;looking through&#34; the impact of oil price shocks on overall inflation, maintaining its baseline forecast of one rate cut each in 2026 and 2027. The firm expects the median federal funds rate to fall within the range of 3.25% to 3.50% in 2026, while the neutral rate forecast for 2027 and beyond is expected to be in the range of 3.00% to 3.25%, which is generally consistent with last December's SEP.
J.P. Morgan's Chief Global Strategist David Kelly wrote, &#34;Examining the public statements of Federal Reserve officials, they may emphasize that the Middle East conflict has added more uncertainty to the inflation and employment outlook. However, their forecasts may not differ much from three months ago.&#34;
It should be noted that the uncertainty of wartime economic forecasts is extremely high, and most economic impacts depend on the duration of the conflict. Trump has suggested that the conflict may end within weeks, but this is difficult to verify.
<h2>Support for rate cuts expected to expand to three votes, marginally increasing dovish power</h2>
At the January meeting, Miran and Waller voted in favor of a 25 basis point rate cut, becoming the two dissenting members. At this meeting, both Goldman Sachs and Morgan Stanley expect the number of votes supporting a rate cut to expand to three.
Bowman clearly stated on March 6 that she believes the labor market needs more monetary policy support and insists that there should be a cumulative rate cut of 75 basis points this year, with recent remarks clearly leaning dovish.
Waller previously stated that if the strong momentum in January's employment does not continue into February, he would support a rate cut—February's non-farm data's significant decline has confirmed this judgment.
Miran is even more aggressive, publicly calling for four rate cuts totaling 100 basis points this year, and that this should be advanced as soon as possible.
Nevertheless, the dovish faction remains a minority within the committee. The other board members and the overall voting members for 2026 tend to be neutral or hawkish, with hawkish members believing that the current policy rate is at or near neutral levels and holding a cautious attitude towards further rate cuts. Currently, no member has publicly advocated for a rate hike.
<h2>Successor controversy remains unresolved, new policy direction still uncertain</h2>
Powell's term as chairman will expire in May this year, and this meeting is his second-to-last presiding over the interest rate decision. He may continue to serve as a Federal Reserve governor until his term ends in 2028, but he traditionally does not comment on related issues.
Trump has nominated former Federal Reserve governor Warsh to replace Powell, but the Senate confirmation process has been obstructed. Thom Tillis stated that he would block Warsh's nomination from advancing until the Justice Department completes its investigation into Powell; if Warsh is confirmed, he is expected to replace dovish governor Miran on the board; if Powell completely leaves the Federal Reserve, an additional governor vacancy will arise.
According to Goldman Sachs analysis, Warsh's dovish inclination partly stems from his confidence in declining inflation, which is not different from Powell's position. However, the challenges that the new chairman may face upon taking office include the cohesion that Powell demonstrated during times of unclear data and committee disagreements, which is not something the new chairman can immediately inherit
On the balance sheet policy, Warsh's position is more divergent from other officials. His proposal advocates for a significant reduction of the Federal Reserve's balance sheet, pushing duration risk back to the market, creating upward pressure on long-term interest rates, while offsetting this through a reduction in the federal funds rate to keep overall financial conditions roughly unchanged.
According to a Reuters survey, about two-thirds of economists surveyed expect the Federal Reserve to resume rate cuts in June this year—after Warsh takes office.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/e27c65b7-d7c6-4eb8-a743-e68aa7876b54.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/e27c65b7-d7c6-4eb8-a743-e68aa7876b54.png"/>
<h2>Market Impact: Interest Rates, Foreign Exchange, Stocks, and Credit Markets Each Have Highlights</h2>
Interest Rate Market: Goldman Sachs' Brian Bingham pointed out that the inflation shock triggered by the Iran war has transmitted to the short end of the dollar, with SFRZ6 volatility exceeding 50 basis points, and the year-end terminal rate pricing hitting a new low. The market is pricing in nearly a 10% probability of a rate hike at Warsh's first meeting (in June), which he believes is extremely low, suggesting a short position on rate hike tail risks.
Foreign Exchange Market: Goldman Sachs' Lexi Kanter stated that geopolitical factors dominate the market, with a focus on switching between inflation shocks and recession risks—if the Federal Reserve emphasizes inflation, the dollar, Australian dollar, Canadian dollar, and real will benefit; if it shifts to recession concerns, the yen may become the strongest currency. G10 trader Mark Salib currently holds a long position in the dollar but has moderately reduced his holdings.
Stock Market: Goldman Sachs' Vickie Chang believes the direct impact of this FOMC is limited, with the key being the evolution of uncertainty. Market risk is tilted towards declining interest rates—if hawkish pricing reverses, falling rates will support the stock market. On the day of the FOMC, SPX straddle options were priced at about 85 basis points; if a hawkish dot plot overlaps with the ongoing situation in Iran, the stock market faces downside risks.
Credit Market: Goldman Sachs' Usman Omer noted that credit spreads have widened significantly due to macroeconomic weakness, stagflation risks, large-scale bond issuance by tech giants, and concerns over private credit, with CDX high yield significantly underperforming investment grade. He believes that wider spreads may become the new normal, and if the trade-off between growth and inflation worsens, credit risk premiums will come under further pressure

.NDX

.IXIC

.SPX

The Federal Reserve's decision to remain on hold in March has almost become a foregone conclusion. Currently, the market focus has shifted from "when to cut rates" to "whether to cut rates." Market expectations for the number of rate cuts this year have decreased from two to one, with the timing of the first rate cut pushed back to the fourth quarter. Bank of America pointed out that, given the heightened geopolitical uncertainty, this meeting is not expected to provide clear forward guidance, and Powell faces significant challenges this time

- The Federal Reserve is expected to maintain the federal funds rate between 3.50% and 3.75% amid rising inflation risks from the Iranian conflict and weakening employment data.  
- Market attention has shifted from "when to cut rates" to "whether to cut rates," with several officials indicating a more dovish stance and anticipated dissenting votes increasing to three.  
- Goldman Sachs predicts limited changes in economic forecasts, while inflation pressures and potential stagflation challenges the Fed's dual mandate of promoting maximum employment and stable prices.

Wallstreetcn

NASDAQ-100

NASDAQ Composite Index

S&P 500

Invesco DB US Dollar Index Bullish Fund

SPDR S&P Software

Proshares UltraPro QQQ

ProShares Ultra QQQ

VG Growth

Pacer Cash COWZ 100-Nasdaq100RotatorETF

Wtree Bbg Usd Bull

VOLATILITY SHARES TRUST 1X SHORT VIX MID TERM FUTURES STRATEGY

Global X Nasdaq 100 Covered Call ETF

VG Financial

Invesco QQQ Trust

Invesco Nasdaq 100 ETF

Fidelity MSCI Financials Index

iShares MSCI USA Min Vol Factor ETF

Fidelity Nasdaq Composite Index ETF

JPMorgan Equity Premium Inc ETF

iShares MSCI USA Value Factor ETF

Tonight, the Federal Reserve is expected to stand pat, with stagflation alarms sounding. How will Powell perform his "balancing act"?