Global markets are focused on the FED meeting to be held on March 18th.
According to Polymarket, an investment forecasting market, investors are almost certain that the Fed will not change interest rates at this meeting.
According to forecast contracts traded on Polymarket, 99% of investors expect the Fed to keep interest rates unchanged at its March meeting. Data on the platform shows that the probability of either a rate cut or increase is quite low. The probability of a 50 basis point or greater rate cut is priced below 1%, while a 25 basis point cut is priced at approximately 1%. Similarly, the probability of a 25 basis point or greater rate increase remains below 1%.
One of the key factors complicating the Fed’s decision-making process has been the recent rise in energy prices. Oil prices surpassing $100 following President Donald Trump’s “war” initiative stemming from tensions with Iran have increased risks to the inflation outlook. While the Fed is already struggling to bring inflation down to its 2% target, persistently high energy prices could make this process even more complicated.
On the other hand, the economic growth and employment outlook is another important factor influencing the Fed’s decisions. As signals of fragility in the labor market increase, the possibility of an economic slowdown could strengthen pressure for interest rate cuts. However, simultaneously, rising energy costs are increasing inflationary pressures, so the Fed needs to strike a balance between these two conflicting risks.
UBS economist and former Fed official Alan Detmeister notes that it is always difficult for central banks to determine how to respond to such supply shocks. According to Detmeister, while rising inflation may necessitate interest rate increases, weakening economic activity and rising unemployment may create a need for interest rate cuts.
*This is not investment advice.