FOMC Meeting Preview: Is 2% Inflation Off the Table This Year?

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Written by: Matt Weller, Head of Global Research at CGS-CIMB

Federal Reserve and FOMC Highlights

• Traders and economists expect the Federal Reserve to keep interest rates between 3.50% and 3.75%.

• Due to the Iran conflict, the Fed may raise its unemployment rate forecast for 2026 (originally 4.5% in December) and its core PCE inflation forecast (from 3.0% to 3.2% or 3.3%).

• Unless Powell explicitly expresses concerns about the economy, traders might consider selling the GBP/USD pair, with a potential downside to 1.3200 support.

When is the FOMC Meeting?

The March 2026 FOMC meeting will conclude on Wednesday, March 18, at 2:00 PM Eastern Time. Federal Reserve Chair Jerome Powell’s press conference will begin at 2:30 PM ET.

What are the FOMC interest rate expectations?

Traders and economists are confident that the Fed will keep rates between 3.75% and 4.00%. As of writing, CME FedWatch shows a 99% probability that the federal funds rate will remain unchanged:

Source: CME FedWatch

Even looking ahead to upcoming meetings, traders predict over a 75% chance that rates will stay unchanged before June, indicating rates are likely to remain steady until the second half of this year.

Assuming the Fed maintains rates as expected, market focus will immediately shift to the monetary policy statement, economic projections summary, and Powell’s press conference to gain insights into how the Fed views the labor market and inflation, especially after energy prices surged due to the Iran conflict.

FOMC Projections

Earlier this week, President Trump once again took to Truth Social to demand an immediate rate cut from Chair Powell.

Unfortunately for the President, the Fed will not cut rates this week, and given the Middle East conflict and rising oil prices, even if Powell’s successor Kevin Waugh takes over in June, rate cuts are unlikely in the first half of the year.

The Iran conflict puts pressure on the Fed’s dual mandate: first, rising energy costs (pushing inflation higher), and second, assessing the slowing labor market in the second half of the year. With economic outlook clouded by the “war fog,” Jerome Powell and his colleagues are expected to keep policy unchanged this month, acknowledging uncertainties in the outlook, with perhaps only one dissenting voice (Stephen Milun, appointed by Trump).

For traders, the quarterly economic projections are more noteworthy. Committee members are likely to stick with the forecast of one rate cut this year (though there’s a very small chance most members might shift to no cuts). Meanwhile, the Fed may raise its unemployment rate forecast for 2026 (originally 4.5% in December), and the core PCE inflation forecast could be revised upward (from 3.0% to 3.2% or 3.3%), with the previous estimate before the Iran conflict at 3.1%.

While these adjustments are not decisive, they suggest the U.S. economy is edging closer to stagflation, which is a major concern for all central bank members.

Regarding Jerome Powell’s second-to-last press conference, the former lawyer is likely to avoid questions about the politicization of the Fed and whether he plans to stay on as a voting member after his term ends on May 15.

Warren Buffett once said, “The trick is, when there’s nothing to do, do nothing.” At least for the next few months, the Fed under Powell is expected to follow this advice, closely monitoring upcoming economic data and waiting for the Iran conflict timeline to become clearer.

Dollar Technical Analysis — GBP/USD Daily Chart

Source: StoneX, TradingView

Looking at the chart, GBP/USD shows an intriguing pattern ahead of the Fed meeting and Thursday’s Bank of England meeting. Since peaking at the end of January, the pair has been declining, with a rebound this week to around 1.3400, near a bearish trendline. The 100-day moving average is also close to this level.

Unless Powell explicitly expresses concerns about the economy, traders might consider shorting GBP/USD if this resistance holds, with potential downside to the 1.3200 Fibonacci retracement level (78.6%) from the January-April rally. Unexpected dovish signals could push the pair through resistance, testing the 50-day moving average and last week’s high above 1.3400.