The FOMC is widely expected to keep the federal funds rate at 3.50-3.75% with no change to the statement.
The FOMC is widely expected to keep the federal funds rate at 3.50-3.75% with no change to the statement. The base case is that this is going to be a non-event given the uncertainty around the Middle East situation and Powell’s final press conference.
The US data since the last FOMC meeting in March has been remarkably strong suggesting underlying economic resilience and even acceleration despite a more pessimistic future outlook caused by the US-Iran war and the Strait of Hormuz closure. The Fed eased monetary policy in the second half of 2025 mainly due to a weakening labour market on worries that it could deteriorate faster and eventually cause a significant slowdown in the economy. In 2026, we’ve been getting better and better labour market data (excluding the February NFP), with continuing jobless claims and weekly ADP data showing a meaningful improvement.
This has led to a repricing in dovish expectations and eventually all the rate cut bets were erased once the US-Iran war broke out. The market is now seeing the Fed remaining on hold at least until July 2027. On the inflation side, the Fed has been missing its 2% target since 2021 and the reluctance to adopt a clear hawkish bias kept the market in a dovish reaction function.