Fed stays on sidelines
As expected, the Federal Reserve concluded its March policy meeting by leaving its benchmark fed funds rate in a target range of 3.5%-3.75%:
Source (data): Federal Reserve. Values represent upper end of Fed funds target range. (For illustrative purposes. Not a recommendation.)
Given persistently sticky inflation data, a March rate cut was considered a relatively low-probability event even before the US-Israeli strikes on Iran. However, with the oil price surge that followed increasing concerns about reheating inflation, the market-based odds that the Fed would leave rates unchanged were around 99% shortly before the meeting.
Although Morgan Stanley & Co. economists recently expressed “high conviction” that the Fed will not respond to climbing oil prices with rate hikes,1 the central bank is understandably cautious given recent events. While the Fed signaled it wanted to look past oil-induced inflation, it would do so only once it is clear that “goods inflation is moving lower.”2 The economists now expect the Fed postpone its next rate cut until September, followed by another in December.
Note: The Fed’s next policy meeting is scheduled for April 28-29, 2026.
1 MorganStanley.com. March FOMC Preview: Oil Shocks: The Fed's Playbook Is Hold or Cut, Not Hike. 3/13/26.
2 MorganStanley.com. March FOMC Reaction: Caution means wait. 3/19/26.