The Federal Reserve announced on Wednesday, March 18, that it is maintaining its benchmark interest rate unchanged, with the federal funds rate target range continuing to be held at 3.50%-3.75%, which aligns with broad market expectations. Although the latest "dot plot" still suggests there may be room for rate cuts within the year, against the backdrop of surging oil prices, renewed inflationary pressures, and continued deterioration of the Middle East situation, the market has become notably more cautious about the prospects for easing. Federal Reserve Chair Powell stated bluntly at the post-meeting press conference that the energy price increase caused by the Iran war will push inflation higher in the near term, while current policy is in a "very difficult" balancing position.

The Fed's continued maintenance of the overnight lending rate this time signals that policymakers remain inclined to take a wait-and-see approach amid an environment of high inflation intertwined with economic uncertainty. Although the Fed's published "dot plot" indicates that rate cuts may still occur this year, market pricing for this has clearly converged.

Affected by sustained surges in international oil prices and the U.S. February Producer Price Index (PPI) exceeding expectations, the interest rate futures market has significantly reduced its bets on rate cuts this year. According to the CME FedWatch tool, the market currently hardly anticipates rate cuts earlier in the year, with the most realistic rate cut window having been pushed back to at least December.

Powell: Iran War Will Push Up Near-Term Inflation, Policy Situation Is Difficult

At the post-meeting press conference, Powell explicitly stated that oil price increases triggered by the Iran war will exert upward pressure on near-term inflation.

He said that recent inflation expectation indicators have risen somewhat, likely reflecting the sharp rise in oil prices due to supply disruptions in the Middle East.