The Fed decides on Wednesday, at 18:00 GMTExpectations are for the Committee to remain on holdFocus will fall on forward guidance and updated projectionsOfficials could sound slightly hawkish amid upside inflation risksFed to Set Policy Amid Heightened UncertaintyInvestors have been biting their nails due to the increasing anxiety over the Israel-Iran conflict, with both nations showing no signs of backing from their attacks. As the element of uncertainty inflicted on the markets by Trump’s tariff strategy was not enough, the new war that could escalate into a broader regional conflict is darkening the global economic outlook even more.In the midst of this chaos, the Fed is scheduled to decide on monetary policy on Wednesday, and it is faced with the hard task of presenting reasonable macroeconomic projections, including an updated ‘dot plot’. No action is expected at this gathering, but that doesn’t make the meeting any less interesting. Traders will be sitting on the edge of their seats in anticipation of clues and hints regarding how policymakers are planning to move forward.Just after the relatively decent NFP report and ahead of the CPI numbers for May, investors were penciling in around 42bps worth of rate cuts by the Fed this year, which is one of the very few times they turned slightly more hawkish than the Fed itself. However, after the inflation data came in lower than expected, they went back to factor in 55bps worth of cuts.Tariffs and Israel-Iran Conflict Pose Upside Inflation RisksToday, fed fund futures are pointing to 50 basis points worth of reductions. Perhaps investors reconsidered the inflation outlook. Yes, the CPI numbers for May came in lower than expected, but the headline rate actually rose to 2.4% y/y from 2.3%, and the core CPI held steady at 2.8%, well above the Fed’s objective of 2%. What’s more, the rally in oil prices due to supply concerns amidst the Israel-Iran conflict could intensify upside risks to the inflation outlook.Therefore, combined with the Atlanta Fed GDPNow model pointing to a solid 3.8% annualized growth rate for Q2, the inflation picture corroborates the notion that Fed officials are likely to maintain a stance of patience. Several Committee members, including Fed Chair Powell, have repeatedly signalled that they are in no rush to further lower interest rates, as the heightened uncertainty due to trade and tariff-related developments could still impact employment and prices.Will the Dot Plot Point to Less Than Two Cuts for 2025?According to a recent Reuters’ poll, economists agree with the Fed’s assessment, expecting the next rate cut to be delivered in September. Market participants are holding a similar view, assigning a 75% chance of a 25bps reduction in September, and nearly fully pricing in a second by December. So, the big question is whether Powell and his colleagues will continue to signal two rate cuts or switch to just one.The economic data support the case of a hawkish hold and an upwardly revised dot plot that points to only one rate cut before the turn of the year is not unlikely. Something like that could give the dollar a strong shot in the arm. However, bearing in mind that the uncertainty surrounding Trump’s policies remains elevated, and that geopolitical tensions are mounting, the wisest choice may be to maintain projections of two additional reductions, even if they sound more hawkish. The dollar could still gain somewhat if investors are convinced about pushing back the timing of when they expect the first rate cut. For the dollar to extend its prevailing slide in the aftermath of the decision, the Fed may need to induce investors to price in the next rate cut before September.Euro/Dollar Hits an Almost-Four-Year HighFrom a technical standpoint, euro/dollar managed to hit an almost-four-year high on Thursday, remaining in uptrend mode above all the plotted moving averages, as marked by the uptrend line drawn from the low of February 3.Therefore, even if the Fed appears hawkish and the dollar gains, any retreat in the euro/dollar pair may be limited and short-lived. The bulls may recharge from near the aforementioned uptrend line and the 1.1365 support zone and perhaps aim for another test at 1.1635. If they manage to overcome that high, they could aim for the 1.1910 zone, which offered strong resistance back in July and August 2021. For a bearish reversal to start being examined, a dip below 1.1060 may be needed, as such a move would confirm a lower low in the bigger timeframes.