The Federal Reserve's resolution is announced in the early morning, and the dot plot or fine-tuning is concerned about the follow-up

The Federal Reserve's interest rate decision in the early morning of Thursday has attracted much attention. Under the influence of international tensions, the transportation of key shipping lanes has been disrupted, and energy prices have fluctuated greatly. The price of WTI crude oil futures recently fell back to about $94-95 per barrel after approaching $97 per barrel. Brent crude oil prices traded above $100 per barrel, and the market continued to raise concerns about energy supply disruptions.

The US dollar index is currently hovering around the 99.5-100, and financial conditions have tightened. The Federal Reserve is expected to maintain the target range for the federal funds rate unchanged at 3.50% -3.75%, the market prices the probability of remaining unchanged close to 99%, and sends a "wait and see" signal through the latest economic forecast summary and dot plot to deal with potential upward inflationary pressures and economic activity uncertainty. Daocheng Foreign Exchange Analysis pointed out that this wait and see attitude to some extent reflects a cautious assessment of the current complex situation.

Policy statement fine-tuning and continuation of forward guidance

The policy statement from this meeting is expected to see only limited adjustments. The first paragraph is likely to change the description of economic activity from "solid" to "moderate", reflecting the slowdown in growth momentum in recent data. The second paragraph may add a reference to the increase in uncertainty caused by changes in the international situation, which may refer to a short-term increase in inflation and put downward pressure on economic activity, but will not change the overall risk balance assessment. The forward guidance may remain partially unchanged, continuing to emphasize that the "extent and timing of additional adjustments" will depend on the data. The two governors may continue to vote against interest rate cuts, but the number of dissenters is not expected to increase significantly, indicating that internal resistance to immediate easing remains strong.

Summary of economic forecasts and key changes in dot plots

The update to the summary of economic forecasts is the focus of this meeting. The Federal Reserve is likely to raise its forecasts for inflation and unemployment, while lowering its economic growth forecast to reflect the potential transmission of higher energy prices to prices and the impact on demand. The dot plot is expected to remain relatively restrained, showing only one rate cut (25 basis points), and the long-term median rate remains at 3.0%. This is basically in line with the market's previous pricing of about 26 basis points of interest rate cuts during the year. Daocheng Foreign Exchange believes that the signal conveyed by the dot plot will help the market form a clearer expectation of the path of interest rates.

The following is a comparison of the median key economic forecasts (typical adjustment directions extrapolated from recent trends):

The last forecast (end of 2025) of the indicator is adjusted in the direction of this forecast. The real GDP growth rate in 2026 is about 2.3%. The unemployment rate in 2026 is about 4.4%. The PCE inflation rate in 2026 is about 2.4%. The median federal funds rate at the end of 2026 is about 3.375%. Basically stable or fine-tuned

Powell's potential statement at the press conference

Mr. Powell is expected to maintain a neutral stance, emphasising data-dependent policymaking. He is likely to argue that tighter financial conditions have partly offset inflationary pressures from higher energy prices, and there is no need to rush to rattle market expectations with policy changes. On the issue of shipping disruptions, he may play down the durability of short-term shocks, while reiterating the balance between the Fed's dual mandate. The overall tone will avoid creating panic and focus on watching the subsequent evolution of inflation and growth data.

Frequently Asked Questions

Question 1: Why did the Federal Reserve not cut interest rates at this meeting, but chose to maintain the status quo?

A. The volatility in energy prices caused by the current international situation has pushed up inflation expectations, and the tightening of financial marekt conditions itself has a certain tightening effect, which helps to contain demand-side pressures. The Federal Reserve prefers to "watch first" rather than act rashly to avoid policy misalignment at the peak of uncertainty. The dot plot maintained a path of only one rate cut, indicating that most policymakers believe that the process of returning inflation to target may be delayed by external shocks.

Question 2: If the dot plot shows fewer interest rate cuts than expected, what impact will it have on the market?

A. If the median of the dot plot confirms only one rate cut or less, it will strengthen the market's pricing of "higher and longer" interest rates, which may push up Treasury yields, support the dollar and put pressure on risky assets in the short term. But given that energy shocks are already partly priced in, there is limited room for a rebound; otherwise, an unexpected display of more easing will temporarily ease market tensions, but follow-up data will be needed to verify sustainability.

Question 3: What is the core impact of the shipping situation on the Federal Reserve's decision-making?

A: Shipping disruptions in the region directly raise global energy costs, constituting a classic supply-side inflation shock rather than a demand-driven one. The Federal Reserve has difficulty directly addressing supply through interest rates, so it prefers to maintain policy neutrality and wait for the shock to be transmitted to core inflation and expectations anchoring. At the same time, uncertainty increases the downside risk weight, but the current employment and growth data have not deteriorated significantly, limiting the need for an immediate shift to dovishness. Overall, this may strengthen the "wait and see + data dependence" framework.