Powell welcomes the oil price shock! Market bets on the Fed to "stand still" The real suspense lies in the dot plot and economic forecasts.

The Federal Reserve will announce its latest interest rate decision on Wednesday local time (early Thursday morning Beijing time). In the eyes of economists, the Fed has almost no choice this week but to continue to stay put, as the central bank is dealing with a series of extremely complex and conflicting forces in the U.S. economy. Pricing in the interest rate futures market shows that the Federal Open Market Committee (FOMC), responsible for setting the benchmark interest rate, has almost zero probability of announcing a rate cut at this meeting (100% probability of staying put), and the probability of a rate cut at any meeting in the near future is also close to zero. Pricing shows that policymakers will consider easing policy no earlier than September and possibly even in October, and even then, traders unanimously price in only one rate cut by the Fed this year. For this week's highly-anticipated monetary policy decision, Federal Reserve Chairman Jerome Powell and his colleagues must address concerns about the Iran conflict, soaring inflation, and mixed signals from the labor market. The combination of these factors almost ensures that the Fed will maintain the status quo and keep its key interest rate target range at 3.5% to 3.75%. Economic forecasts and the dot plot prediction have become the key focus for investors and traders at this Fed monetary policy meeting. The market is almost unanimous in betting that the Fed will stay put this time, keeping the federal funds rate at 3.50%-3.75% range; the real suspense lies mainly in the dot plot, the summary of economic projections (SEP), and Powell's press conference on the outlook for monetary policy rather than whether this meeting will result in a rate cut. The most sensitive issue for policymakers has shifted from "when to start cutting rates" to "facing the resurgence of growth slowdown and inflation concerns, which side will the Fed pay more attention to". Specifically, the market is not focused on "will there be a rate cut in March" - there is almost no suspense on this, but on three things: will the dot plot be more hawkish than in December, how will inflation/growth/unemployment rate forecasts be revised, and will Powell raise the threshold for a rate cut due to oil price shocks and the escalation of the situation in the Middle East. Some economists even point out that the Fed could effectively signal a tightening stance by shifting the dot plot to a more hawkish tone while keeping rates unchanged. If the Fed presents a "more cautious statement, a more dispersed dot plot, and Powell emphasizes inflation and oil price risks more," the market will interpret it as the end of the easing cycle but at least significantly delayed, and both the interest rate curve and pricing of risk assets will be reassessed accordingly; on the other hand, if Powell deliberately downplays the importance of oil price shocks and continues to maintain an open stance on future rate cuts, the market will still see this meeting as a "stay put but retaining an easing bias" transitional meeting. The trajectory of soaring oil prices disrupts market expectations, and the Fed's "stay put" stance becomes almost certain "The decision itself is almost certain - the March meeting will announce a stay-put decision. But any hints that Chairman Powell might release about the future rate path will be crucial," said BeiChen Lin, Senior Investment Strategist at Russell Investments. "Overall, the U.S. economy remains solid. But this also means that the threshold for further rate cuts in the U.S. may be quite high." Even before the outbreak of the Iran conflict, traders did not expect the Fed to cut rates at this week's meeting. According to pricing in the CME FedWatch interest rate futures, traders originally expected the Federal Open Market Committee to wait until September, and then cut rates at least once by the end of the year. However, the U.S./Israeli airstrikes against Iran and some retaliatory measures initiated by Iran - including a substantial blockade of the Strait of Hormuz - and their impact on oil prices and inflation have completely changed market expectations, despite the fact that Fed policymakers usually ignore oil price shocks associated with wars.