The Federal Open Market Committee (FOMC) paused rates for the second straight meeting Wednesday, keeping the target between 3.5% and 3.75% where it's been since December. The Fed still projects one rate cut this year, unchanged from its December forecast, but sees inflation and economic growth up from its previous projections.

The decision was no surprise, and markets are priced for steady policy the next few months as policymakers wrestle with economic impacts from the war in Iran and spiking crude oil prices.

There was one dissent, compared with two at the previous meeting. It again came from Fed Gov. Stephen Miran, who voted to cut rates. Fed Gov. Christopher Waller, who voted for a cut in January, voted for a pause today.

The FOMC's accompanying statement didn't include many changes from its January views, but did mention the war in Iran, noting that "the implications of developments in the Middle East for the U.S. economy are uncertain."

Wording from the January statement that "job gains have remained low" stayed in the new statement. However, the Fed changed its January observation that the unemployment rate has "shown some signs of stabilization" to "has been little changed in recent months."

The Fed repeated "that economic activity has been expanding at a solid pace" and inflation "remains somewhat elevated."

The recent uptick in the unemployment rate doesn't appear to have spooked the committee just yet, as the statement suggests that the unemployment rate 'has been little changed' as opposed to 'has stabilized." The one dissent isn't too surprising, with Miran widely expected to dissent.

The FOMC's quarterly "dot plot" of rate estimates by policymakers showed an average estimate of rates ending the year at 3.4%, right where it was in December and 25 basis points below the current level. The estimates aren't a projection, only a survey of where each policymaker expects rates to be at certain times.

Seven policymakers see rates remaining unchanged this year, tied with seven who project a single cut. Five expect more than one cut. On average, policymakers in the dot plot expect another cut next year.

We are not reading too much into the dots given the uncertainty around the war in Iran, but there is still a wide range of views. Fewer dots suggest a large number of cuts—only five dots suggest two or more cuts, while 14 dots project one cut or less.

Notably, seven committee members have dots suggesting no cuts this year, which suggests that the Fed can take a patient approach going forward. And lost in the dots shuffle is that the median projection for the "long-run" target range inched up to 3.125%. When that gets revised up, it suggests that the current policy rate might be as tight as previously expected.

In its quarterly Summary of Economic Projections, or SEP, the FOMC saw core Personal Consumption Expenditures (PCE) inflation, excluding food and energy, up 2.7% by the end of the year, up from 2.5% in December. For 2027, the PCE inflation projection climbed to 2.2% from the prior 2.1%.

The FOMC raised expected GDP growth for 2026 to 2.4% from 2.3%. It sees the unemployment rate at 4.4% by the end of the year, equal to its December projection. However, it's projected to move lower to 4.3% in 2027 before settling in at 4.2%.

The increase in the median inflation projections was expected, and the small increases in the inflation projections for 2027 suggest that the committee does see the risk of higher inflation as transitory for now, although the committee will likely not use that term.

In a bit of a surprising move, the GDP projections were revised up in 2026, 2027, and 2028, suggesting the committee isn't too focused on the negative consequences of higher oil prices just yet.

The revisions to the unemployment rate were modest as well, with 2027 revised up a tenth of a percent, with no change to 2026 and 2028.

In his press conference, Powell noted that oil shocks are something the Fed typically looks through, and it will be important to make sure longer-term inflation expectations remain well anchored. Inflation has also been slow to fall, he said, due to the impact of tariffs. Inflation expectations, measured by Treasury Inflation-Protected Securities (TIPS), have been steadily rising since the war began, and any additional increases would likely make some committee members nervous about additional cuts this year.

Referring to the current world and market volatility amid sharply higher oil prices, Powell quipped, "This is one of those SEPs, where if anyone was going to skip an SEP, this would be a good one." He added that it's important to keep policy mildly restrictive but not too restrictive due to downside risk in the labor market. "We are balancing these two goals," he said. "We're in a difficult situation here."

Powell tried to provide a broad overview of how the committee members were thinking, but we'll get more specifics over the coming week when they exit their blackout period and we can see what their individual thoughts were.

Looking at his own future, Powell said he would stay on as chairman "pro tempore" if a successor isn't confirmed by the time his current term ends in May, and he will stay on until the criminal investigation launched by the Trump administration ends. He hasn't made up his mind whether to stay on as Fed governor once a new chairman is in place.

"I have no intention of leaving the board until the investigation is well and truly over," Powell said.

Despite fears of "stagflation" given the potential impact from the war in Iran, updated Fed projections don't suggest that's the case, with upward revisions to GDP over the next few years. Prior to the war, we thought inflation would be in the driver's seat for policy over the first half of the year, and that still seems to be the case now.

But these projections could end up being moot points if the war goes on longer than expected. We'll be watching for comments on potential downside risks to the economy for a prolonged conflict and what that means for monetary policy.