Federal Reserve Warns of Possible "No Rate Cuts," Powell Hints He May Serve as "Interim Chair"

How Will Powell’s Reappointment Affect the Independence of Monetary Policy?

Southern Finance, 21st Century Business Herald Reporter Wu Bin Report

According to CCTV News, the Federal Reserve announced on the 18th that the target range for the federal funds rate remains unchanged at 3.5% to 3.75%. This decision aligns with market expectations.

The Fed stated that developments in the Middle East pose uncertainties for the U.S. economy. When deciding whether and when to adjust interest rates in the future, the committee will comprehensively assess the latest economic data, changes in economic outlook, and risk balance.

Before the rate decision was announced, Brent crude oil prices surged to around $110 per barrel, and U.S. gasoline prices rose accordingly. Additionally, before the outbreak of conflict in the Middle East, the U.S. February Producer Price Index (PPI) had already exceeded expectations with an upward trend. The conflict between the U.S. and Iran that erupted three weeks ago added further uncertainty. The closely watched “dot plot” shows that most members expect one rate cut this year and another in 2027, but the specific timing remains unclear.

Meanwhile, as more Middle Eastern energy infrastructure is attacked, the three major U.S. stock indices fell sharply on March 18, with the Dow Jones dropping 1.63% to 46,225.15 points; the S&P 500 fell 1.36% to 6,624.70 points, both hitting new lows since November last year; the Nasdaq Composite declined 1.46% to 22,152.42 points. On March 19, Asian-Pacific markets also declined significantly after opening, with the Nikkei 225 and Korea Composite Index falling over 2% at times.

According to CCTV News, Fed Chair Jerome Powell stated at the press conference that as of February this year, the U.S. Personal Consumption Expenditures Price Index (PCE) increased by 2.8% year-over-year, and core PCE, excluding food and energy, rose 3.0%. He pointed out that current inflation remains relatively high, with some of the increase in goods prices driven by tariffs.

On the 18th, U.S. Labor Department data showed that, after seasonal adjustment, the February 2026 PPI rose 0.7% month-over-month and 3.4% year-over-year, exceeding expectations and marking the largest increase in a year.

Under inflationary pressure, 7 out of 19 FOMC members expect no rate cuts this year, an increase of one from the December forecast last year. Although there is significant divergence in projections for the interest rate path over the next few years, the median indicates that the Fed will further cut rates in 2027, with the federal funds rate stabilizing around a long-term level of approximately 3.1%.

Powell also stated that in the short term, rising energy prices will push up overall inflation, but the scope and duration of this impact remain highly uncertain. If inflation shows no progress, there will be no rate cuts. He emphasized that monetary policy has no preset path and will be decided at each meeting based on economic data.

Powell’s term as Fed Chair will end in May this year. He said that if his successor has not been confirmed by the end of his tenure, he will continue to serve as “acting chair” until the successor is officially confirmed. He will not leave the Fed until the criminal investigation by the U.S. Department of Justice is concluded.

Additionally, Powell hinted that even after the investigation ends, he may continue to stay at the Fed. “I have not made that decision yet. I will decide based on what I believe is in the best interest of the institution and the people we serve.” Powell’s term as a Fed director will last until January 31, 2028.

The Trump administration’s legal challenges against the Fed threatened its independence. The U.S. Congress grants the Fed the authority to set interest rates independently. Fed officials and many private-sector economists believe that non-politicized monetary policy can lead to better economic outcomes.