【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 kept the benchmark interest rate in the 3.50% to 3.75% range, maintaining the 2026 rate cut path on the dot plot. Amid the uncertain Middle East situation, members provided slightly higher estimates for the economy, inflation, and productivity in the SEP, while financial analysts offered scenarios on oil prices, inflation expectations, and interest rate developments.

Key points of this article:

2. This meeting, with a vote of 11:1, maintained the interest rate in the 3.50% to 3.75% range, and the statement added that the high uncertainty in the Middle East poses a significant risk.

3. The dot plot still indicates a path of one rate cut in 2026 and 2027, signaling the Fed’s stance remains cautious but leaning 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, the Fed revised upward its US economic growth forecast, reflecting recent productivity gains.

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

1. Fed March Meeting Holds Steady, Focus on Middle East Uncertainty!

In this meeting, the Fed’s voting members approved, by an 11:1 vote, to keep the benchmark rate in the 3.50% to 3.75% range, with the statement reaffirming that economic activity remains solid, and adding that the high uncertainty regarding the Middle East could significantly impact the US economy. This signals a cautious stance, awaiting further developments. Key points from the statement:

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

The economic outlook remains largely unchanged from the previous statement, describing activity as solid. The description of the unemployment rate was updated from “showing signs of stabilization” to “little changed in recent months.” 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 maintains that it remains somewhat elevated and added that the impact of the Middle East situation on US inflation is highly uncertain.

Interest Rate Guidance: No Change in Easing Attitude

The forward guidance on interest rates remains unchanged, retaining language about possible additional cuts since September 2025, and the phrase “more cautious assessment of the extent and timing” reintroduced in December 2025. The Fed appears to be ending its rate-hiking cycle but remains inclined toward easing.

Monetary Policy Approach: Acting According to Future Inflation Trends

Eleven out of twelve FOMC members agreed to keep rates steady. Only Stephen I. Miran, nominated by Trump, supported a 25 basis point cut at this meeting (previously supported 50 basis points). Most members, like Powell, indicated they will act based on economic data after assessing the Middle East situation, maintaining a cautious stance.

2. Dot Plot Maintains 2026 and 2027 Rate Cuts at 1 Quarter Each

The market’s focus was on the Fed’s interest rate path. The March dot plot shows a more concentrated distribution for 2026, with seven members supporting no change, seven supporting a 25 basis point cut, two supporting a 50 basis point cut, and three supporting cuts greater than 50 basis points. The median remains at a 25 basis point cut, in the 3.25% to 3.50% range, though the overall expectation for rate cuts has softened.

For 2027, the median rate remains in the 3.00% to 3.25% range, with an estimated 25 basis point cut. The 2028 median is also projected at 3.00% to 3.25%, indicating the end of rate cuts. The long-term median rate was slightly raised to 3.125%, and the dot plot still shows an inverted yield curve, implying the committee views the Middle East impact on inflation as short-term, with room to cut rates as inflation slows.

Overall, the Fed expects a 25 basis point cut in 2026 and 2027, signaling continued easing. Notably:

2. One member projects a rate hike in 2027, which was a key question during the press conference. Powell said discussions about rate hikes occurred but are not the baseline.

3. The long-term neutral rate was raised again to 3.125%, reflecting the inclusion of productivity growth in the outlook, which could help slow inflation and support economic growth.

Further details will be discussed during the press conference.

3. Slight Upward Revision of US Economic and Inflation Forecasts, Highlighting Productivity Gains

The SEP again modestly raised the 2026 GDP growth forecast to 2.4% (from 2.3%), with the unemployment rate unchanged at 4.4%. Inflation estimates were also slightly increased: inflation and core inflation to 2.7% (from 2.4%) and 2.7% (from 2.6%). This suggests members see the war’s inflation impact as short-term, with room for rate cuts before 2026. The upward revision of long-term growth to 2% (from 1.8%) and the neutral rate to 3.1% (from 3%) indicates expectations of rising productivity.

Forecasts for 2026–2028:

• GDP growth: 2.4% (from 2.3%), 2.3% (from 2.0%), 2.1% (from 1.9%)
• Unemployment: 4.4% (unchanged), 4.3% (from 4.2%), 4.2% (unchanged)
• PCE inflation: 2.7% (from 2.4%), 2.2% (from 2.1%), 2.0% (unchanged)
• Core PCE inflation: 2.7% (from 2.5%), 2.2% (from 2.1%), 2.0% (unchanged)
• Interest rate path: steady at 3.4%, 3.1%, 3.1%, with the long-term rate slightly up to 3.1%.

4. Fed Continues Monthly Treasury Purchases to Support Market Liquidity

Following the October 2025 meeting, when the Fed announced the end of balance sheet reduction and the start of short-term debt purchases in December, the New York Fed has been executing Reserve Management Purchases (RMPs) since December 12, 2025. Details and liquidity impacts:

Liquidity Impact as of March 2026:

The NY Fed’s plan involves actively purchasing Treasury securities with maturities under one year, and if needed, up to three years. The plan 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 non-reserve liabilities.

The Fed’s balance sheet shows holdings of US Treasuries rising from $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 declining further.

Liability structure indicates that, despite the TGA remaining high at around $937.6 billion, reserve balances have increased to over $30 billion, reflecting the expansion of the balance sheet through short-term debt purchases. The post-meeting press conference did not specify whether the $40 billion monthly purchases will continue beyond April, so ongoing monitoring is recommended as a key indicator of market liquidity during the Fed’s pause on 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 see risks to policy rate control, they tend to act decisively with monetary policy measures.

5. Powell’s Post-Meeting Press Conference Highlights

[Content not provided; likely a summary of Powell’s remarks emphasizing cautious outlook, uncertainty, and data-dependent decision-making.]

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