Key points:

• DXY holds near 99.50 pre-Fed
• Rate hold near-certain, cuts pushed to October
• Powell’s penultimate meeting as Fed chair

Traders expect the Fed to hold steady. More important than that will be the guidance amid war jitters and oil shock.

🏦 The Fed’s Hands Are Tied

• The US dollar index DXY was trading near 99.50 early Wednesday as markets settled into a waiting posture ahead of the Federal Reserve’s rate decision.
• A hold is virtually certain, with markets pricing a near-zero probability of any move at this meeting, or the next several after it.
• The Federal Open Market Committee, or FOMC, is the Fed’s rate-setting body, comprising the seven Board of Governors members and five regional Fed presidents who vote on monetary policy.
• They meet eight times a year and their decisions on the federal funds rate, currently targeted between 3.5% and 3.75%, ripple through every corner of global financial markets.
• Before the Iran war, traders were already comfortable pricing a June cut followed by one more before year end. That calendar has been torn up. Futures pricing now suggests policymakers will not seriously consider easing until at least September, more likely October, with just a single cut penciled in for all of 2026.

⚖️ Three Problems, Zero Easy Answers

• Powell and his colleagues walk into Wednesday’s meeting navigating three conflicting forces simultaneously. The Iran war is pushing oil prices toward levels that historically stoke inflation.
• The labor market is sending mixed signals about the strength of the underlying economy. And inflation, while not yet spiraling, was already sticky before crude started its parabolic run.
• The textbook Fed response to an oil shock is to look through it, meaning treat it as a temporary supply disruption rather than a structural inflation driver and avoid overreacting with rate hikes. The problem is that the Strait of Hormuz has been effectively closed for weeks with no credible reopening timeline, which makes this shock look less temporary by the day.
• Updates to the Fed’s economic and rate projections are not expected to show dramatic changes at this meeting. That itself will be a message. Keeping projections largely intact while oil trades above $100 signals the Fed is still betting on resolution rather than embedding a prolonged energy crisis into its baseline.

🎤 All Eyes on Powell

• Wednesday’s meeting is Powell’s penultimate as Fed chair, with his term ending in May. Markets are weighing how much interpretive load to place on his statements given the transition context.
• A chair in the final stretch of his tenure has less incentive to signal bold forward guidance and more reason to leave his successor maximum flexibility.
• President Trump made his views known Monday, telling reporters that cutting rates now was so obvious a third-grade student could see it and accusing Powell of failing to call a special emergency meeting to address the economic impact of the war.
• Kevin Warsh, Trump’s nominee to succeed Powell in May, will inherit a central bank navigating an oil shock, a Middle East war, a softening labor market, and an investor base that has drastically repriced its rate cut expectations in the span of three weeks.

Source: Tradingview