Neutral Fed Tone Caps Dollar Gains Amid Rising Energy Concerns

The latest FOMC meeting indicated a slightly more hawkish tone compared with previous communications, although policymakers still left the door open for a single rate cut before year-end. In response to the development, the US Dollar Index (DXY) traded sideways on March 19, remaining within the range established since last week.

The FOMC voted to keep the benchmark interest rate unchanged in the 3.50%–3.75% range. However, concerns regarding the impact of the conflict in Iran are starting to influence policymakers' views, particularly regarding the urgency of further monetary easing.

The latest projections, reflected in the Fed's dot plot, showed that 14 of the 19 FOMC members expect either no change in interest rates or only one rate cut throughout 2026. The primary considerations stem from the risk of rising inflation and heightened economic uncertainty linked to tensions in the Middle East.

In addition, the Committee updated its assessment of the labor market; while previously described as showing signs of stabilization, it is now viewed as largely unchanged. The Fed also revised its 2026 inflation forecast upward to 2.7% from 2.5%.

Federal Reserve Chair Jerome Powell noted that supply chain disruptions related to the Iran conflict have pushed up short-term inflation expectations, largely due to higher energy prices. Nevertheless, he indicated that it remains too early to conclude that stagflation risks are emerging. The Fed will continue to rely on incoming economic data to determine its future policy path.

Overall, the meeting marked a transition from a clearly dovish posture toward a more neutral stance. Initial market reactions supported the US dollar, as speculation grew that additional rate cuts may not materialize this year. However, analysts cautioned that upcoming economic data will remain critical in shaping expectations.

Christopher Hodge, Chief US Economist at Natixis in New York, said the FOMC statement leaves significant room for interpretation, suggesting that future policy responses will depend heavily on how rising energy prices affect core inflation and economic growth.

He added that higher fuel costs could weigh on consumer spending and create uncertainties in the labor market.

Natixis continues to project two rate cuts this year, though it acknowledges that stronger inflation risks could delay such easing measures.

Separately, Powell signaled his willingness to remain on the Federal Reserve Board until his successor is formally confirmed by the US Congress. He indicated that he could serve temporarily as chair on an interim basis if the transition process is not completed in time, in order to safeguard the central bank's institutional continuity and independence.