What matters is whether the Fed sees progress on inflation. If the central bank does not see it, then there will be no rate cuts. Jerome Powell’s words allowed the markets to realize that they were right: before the FOMC meeting, CME derivatives stopped believing in two acts of monetary expansion in 2026. After the meeting, the chances of maintaining borrowing costs at current levels jumped from 30% to 46%. Investors realized that buying the US dollar was the right decision.
The Fed usually acts in the style of “and the wolves are fed, and the sheep are safe.” It didn’t work out this time. The pigeons were pecked by the hawks. The markets expected that three FOMC members would vote for a reduction in the federal funds rate. In fact, only one person heeded Donald Trump’s calls. Jerome Powell called the prospects for the US economy unclear due to the conflict in the Middle East, but made it clear that inflation would rise. This was confirmed by an increase in the PCE forecast for the end of 2026 from 2.4% to 2.7%.
Such rhetoric suggests that the Fed would rather hold rates or raise them than lower them. 12 of the 19 FOMC members see at least one act of monetary expansion in 2026. At the same time, several officials shifted their estimates downwards. One of them sees an increase in the cost of borrowing in 2027.
Another unpleasant surprise for EURUSD was Jerome Powell’s intention to remain as Fed chairman until Congress appoints a replacement for him. And this is unlikely to happen while there is an investigation into the current head of the central bank.
The Federal Court rejected the summons from the Ministry of Justice. And now the White House is in a stalemate. The appeal will delay the trial and Kevin Warsh’s rise to power. He suggested to Donald Trump that he would lower the rates. If there is no person, there is no problem. As long as the Federal Reserve does not loosen monetary policy, the US dollar can feel comfortable.
The ECB meeting is unlikely to change anything. Despite all the belligerence of the Governing Council, which intends to prevent inflation from accelerating as in 2022, the best solution in March will be a statement on vigilance. The European Central Bank needs time to assess the consequences of the conflict in the Middle East. The eurozone’s energy-dependent economy is at risk of suffering much more than the United States. Keeping the rate differential at the same level gives the US dollar an undeniable advantage over the euro.
