📉Gold loses 2%

The Federal Reserve is widely expected to leave interest rates unchanged, while signaling an extended pause in its monetary policy cycle. However, the backdrop is becoming increasingly complex: an oil market shock is pushing inflation higher, while early signs of weakening economic activity and a softening labor market are beginning to emerge. Markets will closely watch Fed Chair Jerome Powell’s press conference at 19:30, as well as the updated economic projections. Ahead of the decision, yields are edging lower, while gold is down nearly 2%, falling to around $4,900 per ounce.

• 6 PM GMT, Fed interest rate decision (US): Forecast: 3.75% | Previous: 3.75% (FOMC statement + projections)
• Median Fed rate projections (current level): Forecast: 3.375% | Previous: 3.625%
• Median Fed rate projections (next year): Forecast: 3.125% | Previous: 3.375%
• Median Fed rate projections (next 2 years): Forecast: 3.125% | Previous: 3.125%
• Median Fed rate projections (long term): Forecast: 3.125% | Previous: 3.0%
• 6:30 PM GMT, Speech by Fed Chair Jerome Powell

The baseline scenario from Bloomberg Economics assumes rates will remain in the 3.50% - 3.75% range. However, the decision may not be unanimous. Some FOMC members could dissent in favor of a cut, particularly Stephen Miran and potentially Christopher Waller, for whom the decision remains finely balanced. Back in February, Waller outlined conditions that would justify a pause: inflation close to 2% (after tariff adjustments) and a weakening labor market. Recent data partially meet these criteria—core inflation is stabilizing and the February payrolls report was weak although the strong January print continues to complicate the picture.

A new factor: oil and war

The March meeting takes place under a new risk regime. The conflict involving Iran has pushed oil prices into the $80–$100 per barrel range, directly impacting the inflation outlook.

The Fed is likely to update its statement to emphasize “two-sided risks,” meaning simultaneous threats of:

• higher inflation (energy-driven),

• weaker growth and employment.

This shift in narrative is significant, as it marks a move away from the clear easing bias seen earlier this year.

Projections: inflation up, growth down

The most visible changes will appear in the Summary of Economic Projections (SEP). PCE inflation is expected to be revised higher to around 3.0% (from 2.4%), with core PCE rising to 2.7%.

At the same time, the Fed is likely to lower its GDP growth forecast (to around 2.0% from 2.3%) and raise the unemployment rate projection to 4.5%. The mechanism behind these revisions is consistent: higher energy prices reduce household disposable income, dampen consumption, and weaken labor demand. A stagflationary scenario remains a key risk this year—for both the US dollar and bond yields.

Dot plot: slightly more hawkish

The upward revisions to inflation should be reflected in the dot plot, with the expected rate path shifting modestly higher relative to December. However, not enough to change the median outlook for 2026.

The central scenario still points to one 25 bp rate cut, and no participant is expected to project rate hikes. Even the most hawkish member, Beth Hammack, is likely to maintain a stable path, viewing current policy as broadly neutral.

Statement: a subtle shift in tone

The most likely adjustment to forward guidance will be evolutionary rather than dramatic. The Fed may replace “additional adjustments” with the more neutral “future adjustments,” while removing the implicit easing bias.

This is a small linguistic change, but an important signal—it suggests greater optionality and readiness to act in either direction, including, at least theoretically, the possibility of hikes.

Labor market starting to crack?

One of the most surprising data points since the previous meeting was the 92k drop in February nonfarm payrolls. Analysis presented at a recent FOMC conference suggests the actual weakening could be larger—potentially revised down to -112k.

This matters because:

• private-sector indicators have historically been effective in anticipating revisions,

• some policymakers may conclude the labor market is not stabilizing but deteriorating.

Additional signals from the Beige Book point to stagnant hiring across most regions and slowing economic activity between January and mid-February.

A divide within the Fed

There is a clear divergence within the Fed on how to interpret the current supply shock. From a model-based perspective (FRB/US), higher oil prices and tariffs should be treated as transitory, provided inflation expectations remain anchored. In that framework, optimal policy would maintain an easing bias, as higher energy prices ultimately cool demand and reduce core inflation.

However, the dominant stance within the FOMC is currently more cautious. The hawkish camp is focused on near-term inflation risks, which is likely to keep rate cuts on hold at least through the first half of the year.

Scenario: delayed cuts 

According to Bloomberg Economics, inflation will continue rising in March and April, peaking in May. Only afterward will the effects of weaker demand and a cooling labor market begin to dominate. In this setup, the Fed is likely to remain on hold in the first half of the year, before being forced to cut more aggressively in the second half to catch up with the economic cycle. The March FOMC meeting is likely to carry a more hawkish tone, both in the statement and in updated projections. At the same time, macroeconomic data are increasingly pointing to rising downside risks. As a result, the Fed may find itself in a classic policy trap: reacting to short-term inflation pressures by delaying easing, only to be forced into faster rate cuts later as economic conditions weaken.

GOLD (D1 chart)

Source: xStation5