The Fed held rates at 3.5–3.75% this week and tried to say absolutely nothing. Powell's presser was a masterclass in calculated ambiguity. He likely doesn't want to spook markets with hawkishness, but he also can't pretend he knows where oil prices are going, and when. The dot plot, which shows where fed members are expecting rates to go, shifted: seven of nineteen members now see no cuts at all in 2026, up from six in December. The median still shows one cut, but the dispersion tells you everything. The market is now pricing in no cuts this year.
Here's what I think is actually happening. The Fed is trapped between a war-driven energy shock and tariff-induced goods inflation, with a labor market that is actively cracking. Powell said he doesn't want to “overreact to short-term news events”, but $100+ can only be tolerated without showing up in the CPI numbers for so long. The real question isn't whether they cut this year. It's whether they're forced to start buying Treasuries again to keep the fiscal machine running while the deficit blows out.