【Market Flash】Fed Holds Steady, M-Squared Provides Oil Price, Inflation, and Rate Path Outlook!

What we want you to know:
In March, the Federal Reserve FOMC maintained the benchmark interest rate in the 3.50% to 3.75% range, and the dot plot also kept the path of a 1 percentage point rate cut in 2026. Amid the uncertain Middle East situation, members provided slightly higher SEP estimates for the economy, inflation, and productivity, while financial analysts offered scenarios for oil prices, inflation expectations, and interest rate developments.

Key points of this article:

2. At this meeting, members voted 11:1 to keep the interest rate in the 3.50% to 3.75% range, with the statement adding high uncertainty risks related to the Middle East situation.

3. The dot plot still indicates a path of rate cuts of 1 percentage point in 2026 and 2027, signaling the Fed’s continued stance toward easing.

4. The SEP slightly raised the 2026 economic growth estimate to 2.4% (from 2.3%), inflation and core inflation to 2.7% (from 2.4%) and 2.7% (from 2.5%), respectively, suggesting members view the impact of US-Iran conflict on inflation as short-term. Additionally, members revised upward the US economic growth forecast, reflecting recent productivity gains.

5. During the press conference, Powell maintained a neutral, cautious stance, stating that the high uncertainty in the Middle East makes precise predictions difficult. The Fed will decide within the next six weeks based on evolving conditions, and when asked about rate hikes, he emphasized that although discussions occurred, they are not the baseline scenario.

1. Fed March Meeting Holds Steady, Focus on Uncertainty in US-Iran Conflict!

In this meeting, the Fed’s voting members agreed 11:1 to keep the benchmark rate in the 3.50% to 3.75% range, with the statement maintaining that economic activity remains solid, and adding that the impact of the Middle East situation on the US economy is highly uncertain. This signals a short-term pause to observe developments. Key points from the statement are summarized below:

Economic and Inflation Outlook: Solid Economy, Watchful on Middle East Uncertainty

The economic section of the statement saw little change from the previous meeting, maintaining that activity remains solid. The description of the unemployment rate was changed from “showing signs of stabilization” to “little changed in recent months.” Also, the paragraph on the dual mandate did not reintroduce concerns about increased downside risks to employment, indicating the Fed does not see further weakening in the labor market.

Regarding inflation, the Fed continues to state that it remains somewhat elevated, and added that the impact of the Middle East situation on the US economy is highly uncertain.

Rate Guidance: No Change in Easing Attitude

The forward guidance on rates remains unchanged, retaining language about possible additional cuts since September 2025, and reintroducing the phrase “more cautious assessment of the extent and timing” of future easing (original: the extent and timing). This indicates the Fed is ending its sequence of rate cuts but remains inclined toward easing.

Monetary Policy Stance: Acting According to Future Inflation Trends

Eleven out of twelve voting members supported maintaining the rate in the 3.50% to 3.75% range. Only Stephen I. Miran, nominated by Trump, supported a 1-percentage-point cut at this meeting (previously supported 2 cuts). Most members, like Powell in the press conference, prefer to act based on economic data after observing how the Middle East situation develops, adopting a cautious approach to monetary policy.

2. Dot Plot Maintains 2026 and 2027 Rate Cuts of 1 Percentage Point Each

The market’s main focus was on the Fed’s interest rate path. The latest March dot plot shows a more concentrated distribution for 2026, with seven members supporting no rate change, seven supporting a 1-percentage-point cut, two supporting a 2-percentage-point cut, and three supporting cuts greater than 2 points. The median remains at a 1-percentage-point cut, in the 3.25% to 3.50% range, though most members have lowered their expectations for the size of cuts.

For 2027, the rate is expected to stay in the 3.00% to 3.25% range, with a projected 1-percentage-point cut. The 2028 median remains at 3.00% to 3.25%, indicating an end to rate cuts. The long-term median rate was slightly raised to 3.125%, and the dot plot still shows an inverted yield curve, reflecting the view that the impact of Middle East tensions on inflation is short-term, with room for policy rate reductions as inflation slows.

Overall, the 2026–2027 rate cuts are both projected at 1 percentage point, signaling the Fed’s continued easing stance. Two notable points are:

2. One member projects a rate hike in 2027, which was a focus during the press conference. Powell said discussions about rate hikes occurred but are not the baseline scenario.
3. The long-term neutral rate was raised again to 3.125%, incorporating productivity growth estimates, which will influence economic growth and help contain inflation.

Further details will be discussed at the press conference.

3. Slight Upward Revision of US Economic and Inflation Forecasts, with a View on Productivity Gains!

The SEP (Summary of Economic Projections) again slightly raised the 2026 GDP growth forecast to 2.4% (from 2.3%), with the unemployment rate unchanged at 4.4%. Inflation estimates were also modestly increased: inflation and core inflation to 2.7% (from 2.4%) and 2.7% (from 2.6%). Coupled with a 1-percentage-point rate cut this year, this suggests members see the war’s inflation impact as short-term, with room for rate cuts before 2026. Additionally, the long-term economic growth and neutral rate were raised to 2% (from 1.8%) and 3.1% (from 3%), reflecting productivity improvements.

Forecasts for the next three years (2026–2028):

• Slight upward revision of GDP growth: 2.4% (from 2.3%), 2.3% (from 2.0%), 2.1% (from 1.9%). The long-term growth estimate was raised to 2.0% (from 1.8%).
• Unemployment rate forecasts remain roughly unchanged: 4.4% (from 4.4%), 4.3% (from 4.2%), 4.2% (from 4.2%).
• Slight upward revision of PCE inflation: 2.7% (from 2.4%), 2.2% (from 2.1%), 2.0% (from 2.0%).
• Slight upward revision of core PCE inflation: 2.7% (from 2.5%), 2.2% (from 2.1%), 2.0% (from 2.0%).
• The interest rate path remains unchanged, with expectations of gradual rate cuts: 3.4% (from 3.4%), 3.1% (from 3.1%), 3.1% (from 3.1%). The long-term rate was slightly raised to 3.1% (from 3.0%).

4. The Fed Continues Monthly Treasury Purchases to Inject Liquidity

Following the October 2025 meeting where the Fed announced the end of balance sheet reduction and the December 2025 meeting where it resumed short-term debt purchases, the NY Fed has been executing Reserve Management Purchases (RMPs) of short-term Treasuries since December 12, 2025. Details and liquidity impacts are summarized below:

Liquidity Impact of Short-Term Debt Purchases as of March 2026:

According to the NY Fed’s plan, the Fed will actively buy Treasury securities with maturities under one year, and if necessary, securities under three years. The RMPs will be announced on the 9th business day of each month. Before the April tax deadline, purchases are expected to remain around $40 billion per month to offset the increase in non-reserve liabilities.

The latest balance sheet shows US Treasuries holdings increased from a low of $4.19 trillion to $4.35 trillion, with an average monthly increase of $43.5 billion from December 2025 to February 2026, preventing the balance sheet from shrinking further.

Liability structure indicates that even with the TGA (Treasury General Account) remaining high at around $937.6 billion, reserve balances have begun to rise again, recently surpassing $300 billion, reflecting that short-term debt purchases have expanded the balance sheet and provided market liquidity. The press conference did not specify whether the $40 billion monthly purchases will continue after April, so ongoing monitoring is recommended as a key indicator of market liquidity during the pause in rate hikes.

Note: The purpose of the Fed’s short-term debt purchases is to maintain ample reserve levels, preventing short-term interest rate volatility. Controlling the policy rate’s upper and lower bounds is a key aspect of the Fed’s credibility. When members perceive risks to policy rate control, they tend to act decisively with monetary policy measures.

5. Powell’s Post-Meeting Press Conference Highlights

(Details to be added based on actual conference content)

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