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.
However, Morgan Stanley & Co. economists recently expressed “high conviction” that the Fed will not respond to climbing oil prices with rate hikes. Despite the possibility of higher headline inflation numbers and softer economic growth, they expect the Fed to “look through” current energy price pressures and “stay on hold or cut rates if activity weakens.”1
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.