FOMC Prep (Wednesday 18th March)

On Wednesday, 18th March at 14:00 ET, the FOMC concludes its 2-day meeting, and announces the latest US Interest Rate decision, as well as the rate statement and the latest Summary of Economic Projections (SEP).
Here are some views on what to expect.

General Expectations
Median expectations and market pricing expect the Fed to keep US interest rates unchanged at 3.75%.
If realised, attention will turn to the Rate Statement, but more importantly, the Summary of Economic Projections and the subsequent press conference with Fed’s Chair Powell.

What to Expect
US Stocks
A dovish outcome, such as signals of earlier or more aggressive rate cuts, could support equities, particularly rate-sensitive sectors like technology and growth stocks.
A hawkish tone, emphasizing persistent inflation or fewer expected cuts, may weigh on stocks by tightening financial conditions.
US Dollar
If the Fed signals a higher-for-longer policy, the dollar would likely strengthen as US yields remain relatively attractive.
A more dovish policy outlook could pressure the dollar lower as markets price in earlier rate cuts.
US Government Bond Yields
Hawkish guidance or upward revisions to inflation forecasts could push yields higher, particularly at the front end of the curve.
Dovish signals or lower projected rates in the dot plot may drive yields lower as markets anticipate policy easing.
Federal Reserve Policy
Markets will closely watch the dot plot and economic projections for clues about the timing and pace of rate cuts.
Evidence of persistent inflation or strong growth could keep policy restrictive for longer, while clearer progress toward the inflation target would support a more accommodative path.

Commentary
Barclays
The FOMC is expected to keep the fed funds target range unchanged at 3.50–3.75% next week, reflecting elevated uncertainty and consistent with recent comments that policy is already in a good place. At least two dovish dissents are expected, with some risk of a third. The updated Summary of Economic Projections will likely show higher inflation and, to a lesser extent, stronger GDP growth for 2026, while leaving the unemployment path unchanged. The median dots are still expected to show one 25bp cut in 2026, one in 2027, no change in 2028, and a longer-run rate of 3.0%.

At the press conference, Powell is expected to repeat that the Fed can afford to be patient. Geopolitical developments will likely be highlighted as a source of added inflation pressure and weaker economic activity, but the broader message should remain that policy is well-positioned to manage risks on both sides of the dual mandate and that decisions will continue to be made meeting by meeting.

The rate-cut view has been pushed back, with cuts now expected in September rather than June, and in March 2027 rather than December. That leaves just one 25bp cut expected this year, assuming monthly core inflation moderates and oil prices ease later in the year, followed by another cut in March 2027 as inflation cools further. The Fed’s reaction function is expected to remain largely unchanged regardless of who becomes the next Fed chair.

Bank of America
The Fed is expected to keep policy rates unchanged at 3.5–3.75% at its March meeting, with an 8–2 vote and Governors Miran and Waller dissenting in favour of a 25bp cut. The statement is likely to include some reference to the Iran war, most likely by strengthening the uncertainty language around the economic outlook and possibly adding that a persistent rise in oil prices would put upward pressure on inflation while weighing on economic activity.

Beyond that, the statement is not expected to change much. February payrolls were disappointing, but much of the weakness can be explained by the Kaiser Permanente strike and payback after January’s upside surprise. The unemployment rate also moved higher, but only back to its September 2025 level, which was already the last data point available at the time of the December meeting.

Deutsche Bank
The Fed is expected to keep rates steady, with policymakers emphasising elevated uncertainty tied to the ongoing Middle East conflict and maintaining the view that policy is already well-positioned. Powell is unlikely to give any strong signal on near-term moves, which would leave the Fed on course for a third straight hold at the April meeting. The statement may be adjusted to reflect softer recent labour market data by saying job gains have remained low on average and the unemployment rate has been stable, while also adding language that recent geopolitical developments are highly uncertain and likely to put upward pressure on inflation while weighing on economic activity.

The Summary of Economic Projections is expected to change only modestly, with upward revisions to both headline and core PCE inflation for this year. Growth and employment forecasts are likely to remain broadly unchanged given limited new data and still-high uncertainty. Core PCE is expected to edge higher because inflation started the year at a firmer level than previously assumed, with some modest pass-through from energy prices also possible. The median dot for 2026 is still expected to show one rate cut, while the long-run dot could move slightly higher.

The broader takeaway is that Powell likely delivered the final rate cut of his tenure last December. One cut is still expected this year, most likely in September, but the risks are balanced. If the labour market stabilises, sticky inflation could keep the Fed on hold for longer, while renewed labour market weakness could bring earlier easing. A rate hike this year is still seen as unlikely.

Previous Release
The Federal Reserve left rates unchanged at 3.50%–3.75%, as expected, after three consecutive cuts late last year. The statement painted a firmer picture of the economy, saying activity is expanding at a solid pace rather than a moderate one, while labour market language also improved, with job gains described as low and unemployment showing signs of stabilisation rather than continued deterioration. Inflation was still described as somewhat elevated, but the bigger shift came in the balance-of-risks language: the Fed removed December’s warning that downside risks to employment had risen and instead presented risks to both sides of the mandate in a more neutral way. The guidance paragraph was unchanged, keeping the same flexible “extent and timing” language.

This then caused a whipsaw in US assets, but some strength in USD.

Powell then reinforced that message in the press conference, stressing that the economy has surprised to the upside and that the growth outlook has improved since December. Consumer spending remains resilient, business investment is still expanding, and some recent data distortions tied to shutdown effects should reverse. He acknowledged the tension between solid growth and a softer labour market, but said the labour market may be stabilising after gradual softening, with productivity potentially helping explain the gap. On inflation, he stayed cautious but sounded more constructive, arguing that short-term inflation expectations have fully retraced, longer-term expectations remain anchored at 2%, and much of the remaining overshoot appears tied to tariffs, which he characterised as more of a one-time price effect.

The broader policy message was patience without pre-commitment. Powell made clear the Fed is not trying to define a test for the next cut and said policy is now around the upper end of neutral, making it harder to argue it is still meaningfully restrictive. With upside inflation risks and downside employment risks both having eased somewhat, the Fed sees itself as well positioned to wait and respond to incoming data. For now, the message is steady rates, stronger growth, tentative labour market stabilisation, and inflation progress that is real but still incomplete.