The Federal Reserve is expected to keep interest rates unchanged at 3.50-3.75% and take a “wait and see” approach amid the US-Iran war. At this meeting, we will also get the Summary of Economic Projections (SEP) and the Dot Plot. Inflation and unemployment will likely be revised upwards, while growth forecasts might be downgraded. The Dot Plot should still indicate just one rate cut in 2026.

STATEMENT

We might see some minor changes in the statement but nothing meaningful to change the broader outlook. The first paragraph will likely see a tweak to economic activity from solid pace to moderate.

The second paragraph is likely to remain unchanged but they may add that uncertainty increased amid the US-Iran war and that it could add upward pressure on inflation and weigh on economic activity in the short-term.

The third paragraph shouldn’t see any tweak to the forward guidance as the “extent and timing of additional adjustments to the target range” remains appropriate. The same is true for the fourth paragraph.

The last paragraph should also remain unchanged as Miran and Waller are expected to dissent in favour of a rate cut. Bowman could also join the dissenters but she’s unlikely to do so now if she didn’t do it at the last policy meeting.

Potential surprises:

• No dissenters – slightly hawkish
• 4 dissenters – dovish

SUMMARY OF ECONOMIC PROJECTIONS AND DOT PLOT

At this meeting, we will also get the Summary of Economic Projections (SEP) and the Dot Plot. For 2026, inflation and unemployment are likely to be revised upwards, while growth forecasts might be downgraded. The Dot Plot is expected to remain unchanged showing one rate cut in 2026, one in 2027 and longer run median rate at 3.0%.

Potential surprises:

• No rate cuts in 2026 – hawkish
• Two rate cuts in 2026 – dovish

PRESS CONFERENCE

Fed Chair Powell will likely maintain his usual neutral stance, and more so today given the risks posed by the US-Iran war and the disruptions in the Strait of Hormuz. There’s no reason for him to scare markets given that financial conditions have already tightened since the war started. This could weigh on economic activity and help mitigate inflationary pressures stemming from energy prices.