Early morning, the entire market plummeted! The Federal Reserve made a major announcement! Powell delivered a significant statement!

Feature: Federal Reserve Keeps Interest Rates Unchanged; Financial Institutions Expect Only One Rate Cut This Year; Powell Says Impact of Iran War Still Unclear

The Federal Reserve continues to hold steady.

At 2 a.m. Beijing time on March 19, the Fed announced that the federal funds rate remains in the 3.50%–3.75% range, 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 rates once this year and again in 2027, but the specific timing is still unclear.

Following the announcement, Fed Chair Jerome Powell signaled a hawkish stance during his press conference. He stated that U.S. inflation remains stubborn, and uncertainties are rising. 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.

Due to the hawkish signals and escalating Middle East tensions, U.S. stocks 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%. Major tech stocks all fell, with Amazon down over 2%, and Apple, Google, Microsoft, Meta, Broadcom, Tesla down over 1%. Nvidia declined 0.84%. Analysts warn that ongoing energy shocks could slow inflation and growth, creating a “dangerous combination” that will challenge the Fed’s balancing act.

Fed Announces No Rate Cut

On March 18, Eastern Time, amid escalating Middle East tensions and soaring oil prices, the Federal Open Market Committee (FOMC) released its latest rate decision, keeping the target range at 3.50%–3.75%, as expected.

This marks the second consecutive FOMC meeting without a rate cut after three consecutive cuts last year.

The decision to pause rate cuts 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 a dissenting vote, 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 showed traders estimated nearly a 99% chance of no rate hike.

Compared to the previous meeting, the main change in the statement was an added remark about 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 may 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 most Fed officials expect to cut rates once this year and again in 2027, but the timing remains uncertain.

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

While Fed officials’ outlooks on the U.S. economy have not changed much, they 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%, up 0.3 percentage points from previous estimates.

Powell Signals a Hawkish Stance

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

At the press conference 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—disrupting the inflation slowdown.

He 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,” 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 stable since last summer. Past rate cuts should have helped stabilize the labor market.

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

He emphasized that the impact of Middle East developments remains uncertain, and the Fed will closely monitor risks. It is too early to judge the scope and duration of their economic effects.

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

During Q&A, Powell acknowledged that inflation well above 2% is concerning. Many participants mentioned rising short-term inflation expectations, and all agreed to monitor inflation expectations very closely.

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

He said that slow progress on tariffs could impact 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 could 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 higher end of the neutral zone, possibly slightly restrictive.

He stated that if he leaves office before a successor is confirmed, he will serve as “acting chair” until a new chair is officially appointed.

Source: Securities Times

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