This week, the Federal Reserve decision, closely watching three major signals

As the situation in the Middle East has once again severely disrupted the Federal Reserve's anti-inflation process, Federal Reserve officials who are about to hold a interest rate meeting this week may face a problem that seemed unlikely a few months ago: not when the Federal Reserve will cut rates again, but whether they can continue to convince the market that a rate cut is expected. Nick Timiraos, a well-known journalist known as the "New Federal Reserve News Agency," suggests that the Middle East war is likely to strengthen the consensus expectation that the Federal Reserve will maintain interest rates unchanged. The more difficult issue is what signals officials will send about the future direction of interest rates after the next few months. Timiraos believes that there are three key points to watch in this week's Federal Reserve decision: First is the policy statement. In January this year, some officials tried to persuade to remove the wording implying that the next action would be a rate cut, but failed. If this modification is made at this meeting, it will mark the first explicit acknowledgment that the easing cycle may have ended. The second is the quarterly forecasts (including the dot plot), where 19 officials will individually write down their expectations for future inflation and interest rate trends over the next few years. The third is the press conference after the meeting, where Federal Reserve Chairman Powell may amplify or downplay any signals released by the first two points. Timiraos points out that the impact of the Iran war on the energy market is making the work of the Federal Reserve even more difficult. In the short term, this widespread uncertainty almost guarantees that the Federal Reserve will stand still, just as officials did when Trump announced tariffs last spring - at last year's May press conference, Powell used the phrase "wait and see" eleven times. But the many forecasts to be released this week will force Federal Reserve officials to look ahead, making the outlook more unsettling. This geopolitical conflict has expanded the range of potential economic outcomes, but has not clearly defined which scenario is most likely to occur. If the conflict is contained, oil prices may fall; but if the conflict escalates, oil prices may further soar, threatening both rising inflation and slowing economic growth. Jonathan Pingle, chief economist at UBS, said, "Those who were previously concerned about inflation are now even more worried. And those who are more concerned about the labor market -- this is likely to compound their concerns rather than ease them." The Nightmare of "Temporary Inflation 2.0" Timiraos points out that facing the oil shock, central banks have traditionally advised to "turn a blind eye" - believing that the impact on economic growth and the rising inflation basically offset each other. However, the premise of this advice is that the public believes that inflation will eventually come down. After experiencing five years of above-target inflation and a series of price hikes that have constantly reminded consumers of rising prices, this trust is no longer taken for granted. "Do we really want to go through 'temporary inflation 2.0' again?" Minneapolis Fed President Kashkari said in an interview earlier this month. In December last year, he predicted a rate cut this year. Part of the problem is that the U.S. economy is currently facing the impact of multiple simultaneous shocks, whose effects cannot be separated. In addition to tariffs and the imminent oil shock, immigration crackdowns that reduce the labor supply have also resulted in a phenomenon: despite weak job growth, the unemployment rate has hardly risen. Former Boston Fed President Rosengren said that people cannot clarify the specific impact of every shock on the economy, "this makes it very difficult for the Federal Reserve to make particularly decisive decisions." How far is the dot plot from "zero rate cuts" this year? Timiraos points out that the predictions of the dot plot are likely to dominate the market's reaction to this week's Federal Reserve interest rate meeting. In December last year, out of the 19 Federal Reserve officials in attendance, 12 predicted at least one rate cut this year. But as long as three of them change their views, the highly anticipated median rate change forecast in the dot plot could drop to zero. Even if officials do not collectively plan the forecasts as they do in the policy statement, this outcome will be interpreted as a signal that the Federal Reserve has signaled a longer period of halting rate cuts. It is worth noting that the interest rate pricing in the market has already been significantly adjusted before the meeting. According to options prices calculated by the Atlanta Fed, as of last weekend, traders believed that the likelihood of at least one rate cut before December had dropped to 47%, down from 74% before the start of the Iran war. At the same time, the likelihood of a rate hike by the end of the year has increased from 8% to 35%. Timiraos says that given the impending changeover at the Federal Reserve, the stakes are even higher: Powell's term as chairman ends in May, making any plans made by the FOMC this week the basis for his successor. Furthermore, if officials raise their inflation forecasts, the planned rate cuts will logically become more difficult to justify, especially for those who believe that current rates are close to neither promoting nor slowing growth levels. For decision-makers who believe that inflation rates are close to 3% by the end of the year, cutting rates when rates are not at restrictive levels would be extremely difficult to justify. But on the other hand, for those officials who are already concerned about the labor market -- who have described the labor market as fragile or susceptible to attack, this Middle East war is likely to exacerbate their concerns about downward economic pressure. Timiraos notes that this week, as many as three Federal Reserve governors may still cast dissenting votes to support rate cuts. The oil shock, which threatens to squeeze household spending and weaken consumption, actually strengthens their reasons for keeping the option of rate cuts. Finally, Timiraos writes that regardless of the outcome of the forecasts, the more fundamental change may be in the Federal Reserve's future ability to be proactive. For much of the past two years, when signs of weakness in the labor market appear, officials have cut rates, relying on their confidence in the trajectory of inflation to buy "insurance" against the coming recession. But this balancing act is now facing the risk of failure. "The Federal Reserve tends to have loose policy. That's the general direction," said Vincent Reinhart, former senior adviser to the Federal Reserve and current chief economist at Mellon Investment Management. "But they won't cut rates until they are confident that inflation will persistently come down." This article was reproduced from "CaiLian News", author: Xiaoxiang; GMTEight Editor: Feng Qiuyi.