The Fed issues its latest interest rate decision Wednesday. Here’s what to expect

The Federal Reserve has no choice but to stay on the sidelines this week as it deals with the complex and conflicting mix of forces emerging in the U.S. economy.

Markets are pricing the possibility of the Federal Open Market Committee, which determines interest rates, to cut interest rates at this meeting or at any meeting in the near future to be close to zero. In fact, futures pricing suggests that policymakers will not consider easing until at least September, more likely October, or even just a single cut this year.

For Wednesday’s decision, Chairman Jerome Powell and his colleagues must grapple with the Iraq war, fears of rising inflation and mixed signals from the labor market. The combination of all factors ensures that the Fed will remain steady and target its key interest rate between 3.5%-3.75%. Updates to economic and interest rate forecasts are not expected to show major changes.

“The decision itself is almost guaranteed to keep interest rates steady at the March meeting. But any clues Chairman Powell can give about the path future interest rates will take will be important,” said BeiChen Lin, senior investment strategist at Russell Investments. “Generally speaking, the US economy is still on solid footing. But that means the bar for further rate cuts in the US could be quite high.”

Even before the war, traders were not expecting a disruption at this week’s meeting. Instead, they expected the FOMC to wait until June and then cut rates at least one more time before the end of the year, according to the CME Group report. FedWatch pricing.

But although Fed officials generally examine the types of oil shocks that accompany conflicts, the attacks and their impact on oil and inflation have changed the market’s calculus.

So all eyes will be on Powell’s message. If things go as planned, this will be Powell’s penultimate meeting as chairman, so even then markets may be wary of reading too much into the president’s statements.

“With the April rate cut almost fully priced in, Powell’s ability to steer markets depends on the perception that his comments represent the committee’s consensus rather than his own views,” Bank of America Fed watchers wrote in a note. he said. “Even putting that limitation aside, Powell has his work cut out for him.”

Former Fed Vice Chairman Roger Ferguson told CNBC that he expects the committee to be “cautious” in its post-meeting statement as inflation, unemployment, economic growth and other factors characterize the expected policy path.

“The question on everyone’s mind is what they say about the future and how they think about changing the balance of risk,” he said.

When assessing the labor market versus inflation, Ferguson said he would prefer the Fed focus on prices.

“I’m more worried about high inflation. You know, the Fed has a 2% target. They’ve actually been away from that target for several years,” he said. “At some point, it’s going to start to come into question whether the 2 percent target is really what the Fed is aiming for, and so I’m much more concerned about that.”

Minister Donald Trump has been pressuring the central bank, and Powell in particular, to lower interest rates for years. Appearing before members of the media on Monday, Trump once again lashed out at the chair, saying Powell should have called a special meeting.