The Federal Reserve is widely anticipated to keep its benchmark interest rate unchanged in the 3.50%-3.75% range at its policy meeting on Wednesday, with the decision due at 18:00 GMT [1][2][3][4]. This comes as the US Dollar remains steady and market participants shift their focus to the Fed's forward guidance, particularly in light of escalating Middle East tensions and surging oil prices following the US and Israel's attack on Iran on February 28, which prompted Iran to blockade the Strait of Hormuz [1][4]. As a result, US crude oil prices have risen by more than 40%, and the average retail price of unleaded gasoline in the US has increased by over 75 cents per gallon since the onset of the conflict [4]. Diesel fuel prices surpassed $5 per gallon for the first time since 2022, and jet fuel and home heating oil costs have also soared [4].
The spike in energy prices has heightened inflation risks, with the US Consumer Price Index (CPI) rising 2.4% year-on-year in February, remaining above the Fed's 2% target [1]. At the same time, the US labor market shows signs of weakness, with the economy losing 92,000 jobs in February and the unemployment rate rising to 4.4% [1]. Analysts at Morgan Stanley and UBS expect the Fed to keep rates unchanged, emphasizing the challenge for policymakers in balancing inflation and employment objectives [4].
Market expectations for rate cuts have diminished, with the CME FedWatch tool indicating traders do not anticipate a rate cut before the September meeting, and the probability of a cut at that time is just over 50% [2][3]. The Fed's updated Summary of Economic Projections (SEP) and the dot plot will be closely watched for any shift in the outlook for future rate cuts, with attention on whether the Fed maintains its earlier projection of one rate cut in 2026 or adopts a more restrictive stance [1].
The higher-for-longer rates narrative has pressured non-yielding assets such as gold and silver. Gold (XAU/USD) fell to a fresh monthly low around $4,926, down 1.60% on the day, and technical analysis indicates a bearish outlook as prices slipped below the $5,000 mark and the 50-day Simple Moving Average [1]. Silver (XAG/USD) is consolidating below $80.00, trading in a descending triangle pattern with a bearish near-term bias, and could fall further if support levels are breached [2]. However, ongoing Middle East conflicts are providing some support to safe-haven assets like gold and silver, as geopolitical risks remain elevated [1][2].
The Pound Sterling (GBP/USD) and the US Dollar Index (DXY) are trading flat ahead of the Fed decision, with investors also awaiting the Bank of England's policy announcement and UK labor market data [3].
CONCLUSION
The Federal Reserve is expected to keep rates unchanged amid rising inflation risks from surging oil prices and a weakening labor market. Market sentiment is cautious, with diminished expectations for near-term rate cuts and increased volatility in precious metals. Investors are closely watching the Fed's forward guidance for clues on future policy direction.