The Federal Open Market Committee (FOMC) meeting on March 18 is shaping up to be one of the most closely watched events in recent months. Traders are trying to figure out how the Federal Reserve will react to rising inflation pressures caused by rising energy prices.
Because of rising geopolitical tensions in the Persian Gulf, which are stopping oil from flowing around the world and pushing crude prices above $100 a barrel, markets are entering the decision in a cautious and very reactive state. Elev8 broker says that the Fed’s top priority is still clear: keeping inflation in check, even if it means hurting short-term market sentiment.
Inflation Pressures Grow Stronger
Policymakers’ biggest problem is still inflation. The Fed’s favorite measure, the PCE Price Index, is still above its 2% target, even though rates rose by 525 basis points between 2022 and 2023.
Recent changes in the world have made the problem worse. Oil prices have gone up more than 40% year over year because of the rising conflict in the Middle East. This has made fuel more expensive and added to inflation in other goods and services.
Higher energy costs are like a tax on consumers, which makes it harder for the Fed to change its policies. Because of this, expectations for rate cuts have changed a lot. Markets are now expecting fewer and later cuts than they did before.
‘Energy is your hidden ingredient in the price tag of almost everything. Since businesses usually pass those extra costs down to consumers rather than eating the loss, a spike at the pump quickly turns into a price hike across your entire shopping cart. The Fed cannot ignore the conflict in the Persian Gulf. To cut rates now would be to risk letting the inflation fire burn out of control again,’ says Kar Yong Ang, Elev8 broker’s financial analyst.
Source: RefinitivWhat Traders Should Keep an Eye On
Elev8 broker points out three important factors that will affect how the market reacts:
- The dot plot shows whether Fed officials still think rates will go down in 2026.
- The FOMC statement and Powell’s press conference give us an idea of how long the Fed thinks the oil shock will last.
- Updates to GDP growth and unemployment forecasts for the economy
Even small changes to the dot plot could have a big effect on rate expectations. If just a few policymakers changed their minds, the planned rate cuts could be canceled.
‘The hard landing that economists feared in 2023 didn’t happen, but the risks are reappearing,’ argues Kar Yong Ang, adding that the economy doesn’t necessarily need tight policy to slide into recession—even a reduction in monetary easing might be the tipping point.
Hawkish Hold Expected
Some economists still think that rates will go down later this year, but Elev8 broker is more cautious. The company thinks the Fed will keep rates steady at 3.50% to 3.75% while sending a message that rates will stay high for a long time.
The data doesn’t yet support easing policy because the U.S. economy is still growing faster than its non-inflationary rate. At the same time, higher energy costs make it more likely that inflation will pick up again in the next few months.
This combination suggests a hawkish hold, where rates stay the same but forward guidance gets stricter.
What the Market Is Watching: Gold and the Dollar
The meeting’s results are likely to cause fluctuations in important asset classes, especially gold and the U.S. dollar.
If the Fed keeps being hawkish:
The Dollar Index (DXY) could go up even more if yields go up. The AUDUSD may go down because it is too high. The USDJPY could test the 160.00 level.
On the other hand, a dovish surprise, which is thought to be less likely, could make the dollar weaker and support risk assets. The British pound could benefit from a rebound.
Gold may be under short-term pressure because yields are going up and the dollar is getting stronger. However, geopolitical risks and its role as an inflation hedge could limit the downside. Around $4,900 is where key support is found.
Source: CFTC, Ele8 broker calculationsUncertainty Makes the Market More Tense
The upcoming change in leadership at the Fed adds to the uncertainty. As Chair Jerome Powell’s term comes to an end and new leadership may be coming, the FOMC’s internal divisions are becoming more clear.
Markets don’t like uncertainty, and different opinions within the Fed could make stocks, currencies, and commodities even more volatile.
End
The March FOMC meeting probably won’t change interest rates, but it will give important information about the future direction of monetary policy. Traders should get ready for fewer rate cuts and a longer period of restrictive policy because inflation risks are rising and oil prices are going up.
Elev8 broker tells people in the market to pay close attention to the dot plot and Powell’s comments, as these will affect how they trade in the coming weeks.
‘The market may be hoping for a sign of relief, but the Fed is looking at the geopolitical map. I expect a ‘hawkish hold’ that will provide a strong tailwind for the U.S. Dollar while putting the brakes on the recent rally in stocks,’ notes Kar Yong Ang.
Warning
This article does not give advice on how to invest. There is risk involved in trading, so people should make decisions based on their own financial situation.
About Elev8
Elev8 is a global broker that gives traders access to a full trading ecosystem that includes multi-asset instruments, analytical tools, educational materials, AI-driven solutions, and customer support that is always available. As part of its social responsibility efforts, the company also supports charitable projects around the world.
