The Federal Reserve under Chair Jerome Powell delivered a rate decision, aligning with expectations, on Wednesday. The decision to hold rates unchanged was adopted by a 11-1 margin, with Fed Governor Stephen Miran the lone dissenter, batting for a quarter point cut in rates.
The U.S. dollar futures (DX), which was in the spotlight amid the rate decision, held its gains, and stayed under the 100 psychological resistance. The E-mini S&P 500 futures (ES), however, continued to languish in the red. The contract tied to the S&P 500 Index, a broader measure of U.S. equity market performance, came under pressure since the release of a hot producer price inflation report Wednesday morning.
The Verdict: Following the conclusion of a two-day Federal Open Market Committee (FOMC) meeting, the central bank said it decided to maintain the Fed funds rate at 3.50% to 3.75%.
Source: St. Louis Fed
The decision assumes importance as it has come amid a global energy shock following the U.S.-Iran war that has been raging for 19 days now. This geopolitical risk is threatening to send inflation soaring high yet again. Also, the March meeting in all likelihood could be Powell’s penultimate meeting as his term as the Fed chair ends by May 15. Former Fed official Kevin Warsh, who has a hawkish lenience, has been floated around as Powell's potential successor.
Although Powell could continue as a Governor of the Fed until Jan. 31, 2028, it is unlikely that he sticks on, given the friction that exists between him and President Donald Trump. In the aftermath of the Middle East crisis, Trump pressured Powell through his repeated urgings on social media that the Fed chair should convene an emergency meeting to cut rates.
What the Fed Said Now Vs Then: The commentary on economic activity, job gains and inflation was retained, while the jobless rate was said to have been little changed in March as opposed to the January comment that it remained low.
The March statement also included comments about the implications of the Middle East developments for the economy, which the Fed qualified as “uncertain.”
The central bank persisted with its data-dependence stance. “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” it said.
Economic Projections: The Fed’s updated Summary of Economic Projections (SEP) reflected its optimism regarding growth and view that inflation may exceed previous projections.
- The median real GDP growth forecast was nudged up across the forecast periods (2026, 2027 and 2028. The longer-run growth estimate was also increased to 2% from the 1.8% estimated in December.
- The unemployment rate estimate was left largely unchanged at 4.4% for 2026, falling to 4.2% in the long-run.
- The Fed raised its median estimate for price consumption expenditure (PCE) inflation and core PCE inflation by 0.1 points to 0.3 points for 2026 and 2027. It, however, remained inflation to return to its 2% target by 2028 and in the long run/
- The Fed funds forecast for 2026 was left unchanged at 3.4%, and that for 2027 was retained at 3.1%.
The unchanged Fed funds rate forecast for 2026 suggests the central bank continues to expect a rate cut this year.
Source: Federal Reserve
But the distribution shows a deep division within the Fed officials, with some foreseeing no rate cuts and some deeming one to two cuts are essential. The dot-plot graph is, therefore, perceived to be less dovish than in December.
Powell’s press conference is underway, which would give more clarity on the rate trajectory and the outlook for inflation and growth.
