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Current monetary policy stance remains appropriate.
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Implications of the Middle East situation are uncertain.
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Inflation expectations have risen sharply, mainly due to rising oil prices.
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Inflation projections revised upward for the current year.
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Long-term inflation expectations remain consistent with reaching the 2% target within the forecast horizon.
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The Fed continues to remain in a mode of responding to inflation and labor market conditions.
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Previous rate cut decisions should support the labor market.
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Inflation likely to rise in the short term, but hard to predict in the long term.
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The Fed will decide meeting by meeting.
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Balanced statements from Powell. The Fed seems to remain in wait-and-see mode, at least until the end of Powell's current term.
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Inflation remains on a downward path, even despite the recent oil crisis (duration unknown).
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Previously, there were many signs in inflation that it was starting to fall (progress in limiting tariff impacts on product prices).
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If no progress in inflation decline is seen by mid-year, rate cuts will be hard to expect.
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Slightly fewer FOMC members now support a cut, but consensus still points to it. Dollar strengthening.
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Note that while consensus for a 2026 cut remains unchanged, fewer FOMC members now indicate it.
Source: Bloomberg Finance LP
- Oil shock may show in core inflation. If no inflation progress, no cuts.
- Slower tariff progress led to higher inflation forecasts.
- Partially higher forecasts due to elevated oil prices.
- Fed cannot fully assess how the oil shock will impact the economy.
- Oil shock could be partially or fully offset by increased domestic energy production (higher oil, gas extraction, etc.).
- Interest rates balance on the neutral-restrictive boundary.
- Key now to keep rates slightly restrictive but not overly so.
- Fed in a tough spot, balancing various risk factors.
Several somewhat hawkish comments led to sharper EURUSD drop below 1.150.
- Powell does not intend to leave his position while the DOJ investigation into irregularities continues.
- Powell has not yet decided whether to remain as a Fed governor after his term as chair ends. He will decide based on serving the American people and economy best.
- The labor market shows some signs of weakness, primarily in job creation. The balance of risks is negative.
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