98.9% Expect Fed to Hold Rates in March... Focus on Powell's Remarks

Market Participants Expect Interest Rate Path to Remain Unchanged

Jerome Powell, Chair of the U.S. Federal Reserve (Fed). Photo by Reuters Yonhap News.

The U.S. Federal Reserve (Fed) is expected to keep its benchmark interest rate unchanged at the March Federal Open Market Committee (FOMC) regular meeting, which will be held on March 17-18 (local time). Despite the complex economic conditions caused by war, it is unlikely that the Fed will make any drastic changes to its interest rate trajectory.

According to the CME FedWatch Tool operated by the Chicago Mercantile Exchange (CME), the interest rate futures market is reflecting a 98.9% probability that the Fed will leave its benchmark rate at the current level. This is higher than the 98.1% seen the previous day. The current benchmark interest rate stands at an annual rate of 3.5-3.75%. At present, the futures market expects a rate cut to occur no earlier than September or October.

Most market participants believe that the economic and interest rate outlook to be announced at this meeting will maintain the current trend, CNBC reported. While there may be a slight upward revision in growth and inflation forecasts, the overall interest rate path is not expected to change significantly. The media outlet also noted that it is highly likely the Fed officials' "one rate cut within the year" outlook, presented in December last year, will remain unchanged.

David Kelly, Chief Global Strategist at J.P. Morgan Asset Management, stated, "The Middle East conflict has added greater uncertainty to the inflation and employment outlook," adding, "However, the projections may be quite similar to those from three months ago."

Currently, the Fed must simultaneously consider several factors: rising oil prices due to the war between the U.S. and Iran, renewed concerns about inflation, and mixed signals from the labor market. These factors are cited as the background for the Fed's decision to keep the benchmark interest rate at its current level.

Caution appears to be prevailing within the Fed. Roger Ferguson, former Vice Chairman of the Fed, predicted that the Fed will take an even more cautious approach when evaluating inflation, employment, and growth prospects. He also identified inflation as a more critical risk factor than the labor market, stating, "The Fed has a 2% target, but it has already deviated from that goal for several years. At some point, doubts may arise as to whether the 2% target is truly being pursued."

Given this situation, experts are paying more attention to what signals Chairman Jerome Powell will send out regarding the future interest rate path, rather than the Fed's decision itself. The Summary of Economic Projections (SEP) and the dot plot, which will be released at this meeting, are also considered clues to the Fed officials' perceptions of the interest rate trajectory.

Meanwhile, the market is also closely watching the political variables surrounding the Fed. U.S. President Donald Trump has continued to pressure for rate cuts and has publicly criticized Chairman Powell. He recently claimed that a special meeting should have been held to lower rates. However, with the confirmation of Kevin Warsh, who has been nominated as Powell's successor, delayed, uncertainty over the leadership transition at the Fed has grown. Chairman Powell's term lasts until May this year. However, his term as a Fed board member runs until 2028.

This content was produced with the assistance of AI translation services.