Early morning, broad decline across the board! Federal Reserve makes major announcement! Powell speaks with significant impact!

The Federal Reserve Continues to Hold Steady

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. Additionally, the latest dot plot indicates that Fed officials expect one rate cut this year and another in 2027, though the exact timing remains unclear.

Following the announcement, Fed Chair Jerome Powell’s remarks at the press conference sent a hawkish signal. He stated that U.S. inflation remains stubborn, and with rising uncertainty about the outlook, if inflation shows no progress, the Fed will not cut rates. He also mentioned that some Fed officials favor 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 declined sharply. By the close, the Dow fell 1.63%, the S&P 500 dropped 1.36%, both hitting their lowest levels since November last year; the Nasdaq declined 1.46%. Large tech stocks fell across the board, with Amazon down over 2%, and Apple, Google, Microsoft, Meta, Broadcom, and Tesla each dropping more than 1%. Nvidia declined 0.84%. Analysts warn that ongoing energy shocks could lead to inflation and growth slowing down—a “dangerous combination” that will pose greater challenges for the Fed in balancing its responsibilities.

Federal Reserve Announces No Rate Cuts

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%, meeting market expectations.

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

The decision to pause rate hikes was not unanimous. The FOMC statement noted that out of 12 voting members, one, Federal Reserve Board member Stephen Miran, voted against the decision, 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% chance of no rate hike.

Compared to the previous meeting, the main difference in this statement was the addition of a sentence regarding Middle East tensions.

The statement said that the Iran conflict that erupted three weeks ago has added uncertainty. The conflict and its impact on the Strait of Hormuz have disrupted global oil markets and could keep inflation above the Fed’s 2% target. It stated, “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 one rate cut this year and another in 2027, though the timing remains unspecified.

Of the 19 FOMC members, 7 do not expect a rate cut this year, an increase of one from December. The median projection suggests further rate cuts in 2027, with the federal funds rate stabilizing around 3.1% in the long run.

While the outlook for the U.S. economy remains largely unchanged, officials slightly raised their forecasts 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 Signals a Hawkish Stance

Since the rate hike pause was fully priced in by the market, attention shifted to 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 rising uncertainty—from Middle East tensions to tariff disruptions—is disrupting the inflation decline.

He clearly stated that he would not consider cutting rates until there is further improvement in inflation; meanwhile, the committee has begun discussing “the possibility of future rate hikes,” though this is not the baseline scenario for most officials.

Powell 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 current policy is appropriate “to help achieve our goals.”

He reiterated that demand in the labor market has cooled significantly, but the unemployment rate has remained relatively stable since last summer. Past rate cuts should have helped stabilize the labor market.

During 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 effects on the economy.

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

In the Q&A, Powell acknowledged that the high inflation rate is concerning. Several participants mentioned rising short-term inflation expectations, and all agreed to monitor inflation expectations very closely.

He noted that the rate forecast dot plot is not a preset path; future decisions will be made at each meeting. Some officials favor reducing the number of future rate cuts.

Regarding tariffs, Powell said slow progress affects inflation forecasts and may require more time. Prolonged high oil prices could dampen 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 appropriate, at the edge of tightening and easing. The policy rate is near the high end of the neutral zone, possibly slightly restrictive.

He also stated that if he is still serving as Fed Chair at the end of his term and his successor has not been confirmed, he will continue as “acting Chair” until a formal appointment is made.