As was widely expected, the US Federal Open Market Committee (FOMC) voted 11-1 to keep interest rates unchanged at 3.5%-3.75% following its March meeting.
Despite inflation ticking above the Fed’s 2% target – it’s been above that level for almost 5 years now – and signs of weakness in the US jobs market, the central bank reiterated in its post-meeting statement that it expects just one further rate cut in 2026. This cautious outlook may raise eyebrows among market watchers, particularly given the ongoing conflict in the Middle East and the resulting surge in global oil and gas prices, which is already being felt worldwide.
The impending departure of Fed Chair Jerome Powell in May adds another layer of uncertainty. His expected successor, Kevin Warsh, is widely anticipated to face challenges in managing a deeply divided FOMC, with markets closely watching whether he will push for rate cuts once in office.
Industry experts say the Fed’s latest moves are crucial not only for US and global stock markets, but also for the broader health of the global economy. The Dow, S&P 500 and Nasdaq were all in negative territory on the day following the Fed announcement. With the Bank of England’s Monetary Policy Committee due to announce its own decision tomorrow, but widely expected to hold rates, the current Fed stance and potentially that of the Bank of England, mark a clear shift from the expectations many had for interest rates to fall this spring.
Here’s how market strategists are reacting to the latest US interest rate news:
Max Stainton, senior global macro strategist at Fidelity International, comments: “The US Federal Reserve left rates unchanged, as expected, maintaining the Fed funds target range at 3.5–3.75 per cent. In the press statement, the Committee (FOMC) made clear that geopolitical risks add an increased layer of uncertainty to both sides of the mandate, but other than that, there was little change to the consensus-driven statement. Indeed, little change was the order of the day, with a small 20 basis point increase in core inflation expectations, which wasn’t mirrored on the interest rate sideresulting in a modestly dovish tilt. However, the shift to a single dovish dissent, versus the two or three expected, added a slightly hawkish nuance. Taking it all together, the sense is of a committee constrained by uncertainty, waiting for events in the Middle East to unfold.
“In the press conference, Chair Powell attempted to provide a measured and calm set of forward guidance emphasising the need not to overreact to current events, noting “it’s too soon to know how these will affect the data”, and emphasising exceptionally high uncertainty. He instead placed emphasis on maintaining inflation credibility, particularly through the lens of inflation expectations. Chair Powell also made clear that the Committee is comfortable taking a wait-and-see approach as the impact of the conflict unfolds, while placing greater weight on the need for goods inflation to slow meaningfully over the year. He was explicit that any bias towards easing remains conditional on that progress materialising.
“Looking ahead to the rates outlook for the rest of the year,this will unsurprisingly be dominated by developments in the Middle East. In our base case scenario of oil prices remaining elevated but rangebound at $90-$110/bbl, we would expect the Federal Reserve to remain on hold for longer, with the bar for near-term easing rising. That said, we do not think this environment, on its own, is sufficient to drive a renewed tightening cycle, as the growth drag should remain manageable and the shock is likely to have a one-time price effect, rather than being broadly inflationary.
“By contrast, a move into an upside tail risk scenario with oil prices above $120/bbl (a significant fat tail risk that is currently rising in probability) would create a materially more difficult policy backdrop. Such a sustained oil move would reinforce a higher-for-longer stance, particularly if transport and broader goods prices begin to reaccelerate alongside rising fuel costs. However, we would also expect the medium-term policy path to become less linear, as a deeper energy shock would raise the risk of demand destruction and recession later in the year.
Taken together, if our base case scenario plays out, then we would still expect one to two cuts from the Fed this year. But we would note that events are shifting rapidly in the Middle East with signs of escalation appearing after Iranian energy infrastructure was hit today, which, if this persists, almost certainly removes the chances of cuts this year.”
Amova Asset Management Chief Global Strategist Naomi Fink comments: “Even though, in its Summary of Economic Projections (SEP), the FOMC maintained its projection for one 25 bp rate cut in 2026 and one in 2027, the sum of its statement, the SEP and Powell’s press conference appear to have amounted to a hawkish hold.
“The statement contained only brief mention of prospective economic impact from a broader supply shock, by explicitly referring to the “uncertain” implications of “developments in the Middle East”. The introduction is significant, despite its brevity and even though the policy “dot plot” remained unchanged – it introduces some probability of a structural shift in the current inflation and interest rate regime. Meanwhile, the reaction function language, such as the “extent and timing of additional adjustments” and the intent to “carefully assess incoming data, evolving outlook, [and] balance of risks” remained superficially unchanged. Again, although the reaction function language appears superficially unchanged, the introduction of the new input is significant in that, all else equal, its impact is likely inflationary.
“Meanwhile, the Summary of Economic Projections was in tension with the statement. For example, even despite the statement’s softer language in the statement about “low” job gains (prior they were described as “solid”), there were significant upgrades within the SEP, not only to each annual growth projection but also longer-run growth projections in March projections, from 1.8% in December to 2.0%. The latter may, if maintained, imply either higher equilibrium interest rates, a higher term premium or an inflation risk premium. Projections for 2026 and 2027 core and headline PCE were also upgraded, although longer-run projections still converge to the 2% target. That upgrades to both inflation and growth were not accompanied by an upgrade to the policy outlook was the focus of one line of questioning at Chair Powell’s subsequent press conference. This is because the growth and inflation SEP is in tension with the policy path projection. The upgrades signal that there may now be a higher bar to clear for the Fed to deliver interest rate cuts, contingent on the persistence of the oil shock impact.
“Partly for this reason, the press conference may also have been interpreted as more hawkish than the Fed’s statement. Dominating Powell’s press conference was the repeated phrase “wait and see”, indicating reaction function conditionality which – according to the statement – now includes the uncertainty surrounding the energy supply shock, amid higher-than-target inflation. Meanwhile, it is possible that recent, more disinflationary readings may have lower influence over future policy than before due to the introduction of the oil shock (though the Fed remains in “wait and see” mode for now). In the press conference, inflation progress was framed as a necessary condition for further easing rather than an expectation, which is important.
“The asymmetry surrounding the inflation language (of active constraint) versus the passive/observational language surrounding growth may indicate that a reaction function shift may be under way – that inflation and inflation expectations dominate the policy trigger, in an environment of high uncertainty.
“Fed fund futures subsequently reduced their anticipated probability of near-term cuts, the dollar strengthened versus majors, possibly anticipating relatively higher real rates or an inflation risk premium relative to other markets. Major indices declined as they appeared to perceive a reduced “Fed put” probability, underscoring the hawkish interpretation by the market of the full set of FOMC policy signals.”
Lindsay James, investment strategist at Quilter comments: “Following a run of disappointing data prints, the Federal Reserve has once again opted to hold interest rates at today’s meeting, and its latest dot plot still points to just one rate cut this year. The US economy shed 92,000 jobs in February when markets had expected a gain of around 55,000, and while adverse weather and strike action played a part, the pain was felt across a range of industries. We also saw Q4 GDP revised down sharply, with growth now estimated at just 0.7% rather than the initial 1.4%. However, the economic projections that accompanied this statement highlighted that the Committee has increased its expectations for GDP growth in each of the next three years.
“Ordinarily, this combination of softer growth and a weakening labour market would tilt the balance towards a rate cut given the Fed’s dual mandate requires it to consider both price stability and maximum employment. However, the surge in oil prices has been the fly in the ointment.
“Central banks typically look through short term oil price volatility as while it can lead to higher prices for some goods and services, it also tends to act as its own brake on the economy, dampening the inflationary impact. This time, however, the closure of the Strait of Hormuz, the scale of the resulting price shock, and the uncertainty over when supply routes will fully reopen mean the Fed cannot afford to dismiss the inflationary risk so easily.
“Just one of the Trump appointed Committee members, Stephen Miran, continued to vote for an immediate cut, while the remaining voters told a more cautionary tale. Attention will soon shift to the possible arrival of Kevin Warsh later in the spring. He is set to inherit a committee that has been deeply split between hawks and doves, and it is unlikely that he’ll be a unifying figure given he’ll have argued for cuts in order to be appointed in the first place. There is a real possibility that later in the year we could see the unusual situation of an incoming Chair voting for a cut that does not receive majority support.”
Richard Flynn, Managing Director at Charles Schwab UK said: “As expected, the Federal Reserve left interest rates unchanged at 3.5%-3.75%, with the decision taken against the backdrop of the ongoing conflict in Iran, which shows little sign of easing. Markets have also pushed back expectations for the first rate cut to the summer of next year, from two cuts previously anticipated in 2026. A key driver behind this reassessment is the sharp rise in energy prices linked to tensions in the Middle East, prompting investors to re‑evaluate the inflation outlook.
“Diminishing prospects for near‑term rate cuts run counter to President Trump’s calls for lower borrowing costs for households and businesses, as energy‑led inflation remains a credible risk. Attention is firmly fixed on energy markets, with fuel prices rising sharply for US consumers. Until there is greater clarity on how the conflict will unfold, expectations of an imminent rate cut remain firmly off the table.”
Harun Thilak, Head of Global Capital Markets North America at Validus Risk Management, said: “The Fed left rates unchanged, with Stephen Miran being the lone dissenter (who called for 25bp cut). While the statement highlighted that the developments in the Middle East will be monitored for their effects on the US economy, US GDP projections were revised higher, which was a marginal surprise. Inflation projections were also marked higher but perhaps not as large as market expectations (in light of the recent energy price rise). Overall, a balanced statement has led to a muted reaction in FX and rates markets, with roughly 23bp of cuts being priced in currently till end of 2026.”
Daniele Antonucci, Chief Investment Officer at Quintet Private Bank (parent of Brown Shipley) comments:
“That the Fed didn’t cut rates was widely expected, given a fine balance between downside risks to the labour market versus a still somewhat elevated level of inflation and rising risks from oil prices. We don’t expect any further rate reduction under Fed Chair Powell and see the central bank on hold over the next couple of monetary policy meetings and perhaps beyond, until more clarity on the Iran conflict and its impact on oil prices becomes clearer.
“The big question for markets is how the central bank will react to a potential oil shock that raises inflation and lowers growth at the same time. We think that, on balance, the rate-setting committee is likely to pay more attention to labour market conditions and lean towards lowering rates in that scenario, as long as inflation expectations remain anchored.
“While geopolitical risks persist, we think the fundamental macro backdrop, while more uncertain, remains supportive. Cyclical and structural forces, from monetary and fiscal stimulus to AI investment and a more multi-polar world, are reshaping economies and markets.“
