The Brief

The Federal Reserve’s Open Market Committee convened Monday for its two-day March meeting, with the CME FedWatch tool pricing a greater than 99% probability that rates will hold at 3.50–3.75%. Wednesday’s updated Summary of Economic Projections and dot plot — the first since the Iran war sent oil above $100 a barrel and core inflation to a two-year high — will signal how the Fed intends to navigate a supply shock that has made its December forecast obsolete before the ink dried.

The Report

The FOMC’s March 17–18 meeting arrives at a moment when the Federal Reserve’s two mandates — stable prices and maximum employment — are pulling in opposite directions with unusual force. The rate decision itself, due at 2:00 PM ET Wednesday, carries no suspense. The projections that accompany it carry almost all of it.

In December, the committee’s median dot plot projected one additional 25-basis-point cut in 2026, bringing the federal funds rate to 3.4% by year-end. That projection was built on a world in which Brent crude sat below $70 a barrel, core PCE inflation was expected to drift toward 2.5%, and the labour market was softening gently. None of those conditions still hold.

Operation Epic Fury — the joint U.S.–Israeli strike that killed Ayatollah Ali Khamenei on February 28 — and Iran’s subsequent closure of the Strait of Hormuz removed roughly 20 million barrels per day from global transit, the largest supply disruption since the Suez Crisis. Oil spiked to an intraday peak of $126.50 before settling in the $90–$100 range despite a coordinated 400-million-barrel release from IEA strategic reserves, the largest in the agency’s fifty-year history. Gasoline prices jumped from under $3 to $3.54 per gallon within two weeks.

The inflation data already reflected trouble before the war began. January’s core PCE reading came in at 3.1% year-over-year — the highest in nearly two years — with monthly gains of 0.4% for the second consecutive month, a pace that if sustained would push inflation well above the Fed’s 2% target. Goldman Sachs has since revised its headline PCE forecast for end-2026 upward by 0.8 percentage points to 2.9%.

On the employment side, February’s jobs report showed the economy lost 92,000 positions against expectations of a 50,000 gain, the third month of net losses in five. Unemployment ticked up to 4.4%. The average duration of unemployment reached 25.7 weeks, the longest since late 2021.

Wall Street’s rate forecasts have fractured accordingly. JPMorgan now expects zero cuts this year. Goldman Sachs pushed its first expected cut from June to September. EY-Parthenon’s Gregory Daco said it is “entirely plausible that the Fed won’t deliver any rate cuts this year.” At the dovish end, Citi Research still projects 75 basis points of easing.

This is also Jerome Powell’s penultimate meeting as chair. His term expires in May, with President Trump’s nominee Kevin Warsh awaiting a Senate confirmation currently blocked by Senator Thom Tillis over an unresolved criminal investigation into Powell. Bank of America’s Antonio Gabriel warned that markets may be underpricing the probability of the conflict extending into the second quarter, noting that “the more disruptive scenarios for global growth are underpriced.”

The updated dot plot will show whether the committee’s December median of one cut survives contact with a world that has changed more in seventeen days than in the preceding seventeen months.

The Angle

The interesting number on Wednesday will not be the rate. It will be the spread on the dots — the distance between the most hawkish and most dovish projections. In December, that range ran from 2.1% to 3.9%, a gap so wide it suggested the committee was not disagreeing about timing but about what kind of economy they were looking at. The Iran shock has not narrowed that disagreement. It has given both sides more ammunition.

The hawks have core PCE at 3.1% and an oil market that shrugged off the largest strategic reserve release in history. The doves have an economy that shed 92,000 jobs in February, an unemployment duration not seen in four years, and a consumer about to absorb a gasoline price increase that, at $100 oil, eliminates the tax-cut benefit for the bottom 70% of American households. Both readings are correct. That is the problem.

Powell will do what central bankers do in supply shocks: emphasise that the transmission runs through financial conditions, particularly oil prices, while declining to commit to a direction. Deutsche Bank expects minor statement tweaks. The market expects patience. What neither is pricing adequately is the structural position the Fed is actually in — caught between an inflation metric that was already moving the wrong way before a barrel of Iranian crude became unavailable, and a labour market weakening fast enough that waiting too long to cut becomes its own policy error. The 1970s comparison that Simon Johnson and others have raised is not about oil prices. It is about the specific mistake of treating a supply shock as transitory while the underlying inflation dynamics were already unresolved. Core PCE was 3.1% in January. The war started in February. The Fed meets in March. The sequence matters more than any individual number, because it means the committee is not responding to one shock. It is responding to two — and the first one was already there.

The dot plot will be read as a forecast. It is better understood as a measure of how many members of the committee have realised that the December projections described a country that no longer exists.