Federal Reserve Announces No Rate Cut! Powell Sends "Hawkish" Signal

Source: Securities Times Network Author: Zhou Le

The Federal Reserve continues to “stand pat.”

At 2 a.m. Beijing time on March 19, the Federal Reserve announced that the federal funds rate range would remain unchanged at 3.50%–3.75%, in line with market expectations. The policy statement mentioned that the impact of Middle East conflicts on the U.S. economy remains uncertain. According to the latest dot plot, Fed policymakers expect to cut interest rates once this year and again in 2027, but the specific timing is still unclear.

Following this, Fed Chair Jerome Powell’s remarks at the press conference sent a hawkish signal. He stated that U.S. inflation remains stubborn, and uncertainties are rising; if inflation shows no progress, there will be no rate cuts. He also mentioned that some Fed officials lean toward reducing the number of future rate cuts.

Influenced by the hawkish tone and escalating Middle East tensions, the three major U.S. stock indices all fell sharply. By the close, the Dow dropped 1.63%, the S&P 500 fell 1.36%, both hitting their lowest levels since November last year; the Nasdaq declined 1.46%. Large tech stocks all declined, with Amazon down over 2%, and Apple, Google, Microsoft, Meta, Broadcom, and Tesla each down more than 1%. Nvidia fell 0.84%. Analysts warn that ongoing energy shocks could lead to inflation and growth slowing down, creating a “dangerous combination” that will pose greater challenges for the Fed in balancing its responsibilities.

Federal Reserve Announces No Rate Cut

On March 18, Eastern Time, amid escalating tensions in the Middle East and soaring oil prices, the Federal Open Market Committee (FOMC) released its latest rate decision, maintaining the federal funds rate target range at 3.50%–3.75%, in line with market expectations.

This marks the second consecutive pause after three consecutive rate cuts at the end of last year.

The decision to pause rate hikes was not unanimous. The FOMC statement noted that among the 12 voting members, one, Federal Reserve Board Governor Stephen Miran, voted against the decision, still favoring a 25 basis point cut.

This is the sixth consecutive FOMC meeting with dissenting votes, highlighting increasing internal divisions within the Fed.

Market expectations for the pause were already high. On the eve of the meeting, CME’s FedWatch tool indicated that traders priced in nearly a 99% probability of no rate hike.

Compared to the previous meeting, the most notable change in this statement was the addition of a remark regarding Middle East tensions.

The statement pointed out that the conflict that erupted three weeks ago in Iran has added uncertainty. The conflict and its impact on the Strait of Hormuz have disrupted global oil markets and may keep inflation above the Fed’s 2% target. The statement said, “The development of the Middle East situation remains uncertain for the economy.”

The dot plot released after the meeting shows that most Fed officials expect to cut rates once this year and again in 2027, though the exact timing remains unclear.

Of the 19 FOMC members, 7 expect no rate cuts this year, an increase of one from December last year. The median projection indicates further rate cuts in 2027, with the federal funds rate stabilizing around 3.1% in the long run.

Fed officials’ outlooks on the U.S. economy have changed little but have slightly raised expectations for economic growth and inflation in 2026.

In the latest economic projections, Fed officials expect U.S. GDP to grow 2.4% this year, slightly higher than the December forecast of 2.3%; for 2027, growth is expected at 2.3%, an upward revision of 0.3 percentage points.

Powell Sends Hawkish Signal

Since the rate hike pause was fully priced in, markets are now more focused on Powell’s latest remarks.

At the press conference held at 2:30 a.m. Beijing time, Powell warned that U.S. inflation remains stubborn, and uncertainties are rising—from Middle East tensions to tariff disruptions—various variables are disrupting the inflation slowdown.

Powell clearly stated that he would not consider rate cuts until further inflation improvement is seen; meanwhile, the committee has begun discussing “the possibility of rate hikes next,” though this is not the baseline scenario for most officials.

He opened by saying that the U.S. economy is expanding, inflation remains slightly high, consumer spending is resilient, but housing activity is weak. He believes the current policy stance is appropriate, “helping to achieve our goals.”

Powell reiterated that demand in the labor market has cooled significantly, but the unemployment rate has not changed much since last summer. Past rate cuts should have helped stabilize the labor market.

In the Q&A, Powell added that there are indeed downside risks to the labor market, but several employment indicators show some stability.

He specifically pointed out that the impact of Middle East developments remains uncertain, and the Fed will closely monitor various risks. It is too early to judge the scope and duration of their impact on the economy.

Regarding U.S. inflation, he said recent inflation expectations have risen, energy price increases will push up overall inflation, and some oil shocks will be reflected in core inflation.

During the Q&A, Powell acknowledged that inflation well above 2% is concerning. Several participants mentioned rising short-term inflation expectations, and all agreed to keep a very close watch on inflation expectations.

Powell mentioned that the dot plot of interest rate projections is not a preset path; future decisions will be made at each meeting. Some officials lean toward reducing future rate cuts.

In the Q&A, Powell said that slow progress on tariffs affects inflation forecasts, which may require more time. Prolonged high oil prices will weigh on consumption, and “we really don’t know what impact rising energy prices will have.”

He added that oil shocks can be offset by U.S. energy production; if oil companies believe the rise will persist, they will increase output.

Powell believes the current policy stance is just right, at the edge of tightening and easing. The policy rate is in the upper end of the neutral zone, or slightly restrictive.

He stated that if he leaves the Fed chair position before his successor is confirmed, he will continue to serve as “acting chair” until a formal appointment is made.