Internal divisions within the Federal Reserve and the reappointment of Powell to the Board have raised the threshold for the Fed to cut rates. Although the Fed’s March dot plot indicates there will be one more rate cut in 2026, given that three voting members explicitly oppose keeping a “dovish bias” for further rate cuts in the statement, Powell’s reappointment, coupled with the repeated twists in the Middle East situation that have pushed oil prices higher again, suggests that the Fed’s bar for cutting rates in 2026 has increased. It is also not ruled out that the Fed could remove the rate-cut guidance from the dot plot at the June meeting.

Looking ahead, an easing of the Middle East situation could drive oil prices lower, together with the fade in the impact of tariffs, which may lead to a moderate cooling in US inflation. In addition, marginal cooling in new non-farm payrolls in Q2, and the potential for a seasonal rise in the unemployment rate, may create conditions for 1—2 rate cuts in the second half of the year, but uncertainty about the rate-cut outlook is increasing.