After the Fed announced its interest rate decision, market attention is now focused on Chairman Jerome Powell’s press conference, which will take place at 9:30 PM Turkish time (2:30 PM ET).
Powell’s messages following the decision are expected to be critical, particularly in terms of expectations regarding the inflation outlook and the interest rate path.
The Federal Open Market Committee (FOMC), in line with expectations, decided to keep the policy interest rate unchanged at 3.50% – 3.75%. The decision, taken with an 11-1 vote, saw a strong majority in favor of keeping the rate unchanged, with only member Stephen Miran voting against a 25 basis point rate cut. Christopher Waller, who had previously supported a rate cut, voted to keep the rate unchanged at this meeting.
While the economic assessments in the decision text were limited, it was noteworthy that growth expectations were revised upwards slightly and inflation forecasts were increased. FED officials expect growth to be at 2.4% for 2026, while the projection for 2027 was raised to 2.3%. On the inflation side, the personal consumption expenditures (PCE) index is expected to be at 2.7% this year.
Despite this, the Fed has not completely ruled out interest rate cuts. According to the “dot plot” data, which reflects the individual projections of officials, an interest rate cut is projected for 2026 and a further cut in 2027. However, while uncertainty regarding the timing persists, the policy rate is expected to stabilize at around 3.1% in the long term.
On the other hand, the decision text placed special emphasis on developments in the Middle East. It stated that the US-Iran conflict, which has been ongoing for about three weeks, and especially the risks around the Strait of Hormuz, could push oil prices up and put pressure on inflation. The Fed stated that the impact of these developments on the US economy is “uncertain”.
Prior to the decision, markets were pricing in the possibility of two interest rate cuts, but rising oil prices and stronger-than-expected inflation data lowered that expectation. Current pricing now forecasts a maximum of one interest rate cut by 2026.
The Fed’s decision also came at a time of increased political pressure. US President Donald Trump has recently intensified pressure for interest rate cuts, criticizing Powell for not calling an emergency meeting. The fact that Powell’s term ends in May and that former Fed Governor Kevin Warsh has been nominated to replace him further increases uncertainty regarding the monetary policy outlook.
*This is not investment advice.
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