US: March FOMC Assessment

■ While the policy rate remained unchanged as expected by the market, the Federal Reserve reinforced its cautious stance against early rate cuts.  

■ Going forward, the focus will be on inflation trends; the longer oil prices remain high, the more likely expectations for US rate cuts will be postponed. 
 
At the Federal Open Market Committee (FOMC) meeting held on March 17-18, the policy rate remained unchanged at 3.50–3.75%, as expected by the market. The released statement only added a description based on the situation in the Middle East, while the median forecast for the policy rate path in the Summary of Economic Projections (SEP) remained unchanged at "one rate cut each in 2026 and 2027." On the surface, the Fed's monetary policy stance seems largely unchanged, but the "Central Tendency" range has shifted upward. Judging from the reactions in financial markets during Chairman Powell's press conference—a decline in US stocks, a rise in US Treasury yields, and a strengthening of the US dollar—this meeting was generally interpreted as a move towards greater caution regarding early rate cuts. 

 
In the SEP, the 2026 US core personal consumption expenditures (PCE) deflator forecast was further revised upward from 2.5% to 2.7%. Meanwhile, Chairman Powell expressed concern about the risk that the US government's high tariffs would gradually transmit to commodity prices and push up inflation. Regarding the Middle East conflict, he stated that "its economic impact is still unclear" and "it is too early to judge," suggesting that the Federal Reserve had already detected signs of upward inflationary pressure before the Middle East conflict. Furthermore, the February Producer Price Index (PPI), released before the FOMC results, saw a faster month-on-month growth of 0.7%, which also contributed to the retreat of interest rate cut expectations in financial markets, triggering a decline in US stocks, a rise in US Treasury yields, and a stronger dollar. 

 
On the other hand, the Fed's understanding of the slowdown in the labor market, which was the main basis for the interest rate cuts implemented at the end of last year, has not changed significantly. It still stated that it will determine the magnitude and timing of policy rate adjustments based on future data, prospects, and the balance of risks. Chairman Powell pointed out at the press conference that restarting interest rate cuts requires confirmation of progress in the decline of inflation; therefore, financial markets are likely to pay more attention to inflation trends in the future. At the same time, the impact of the current rise in oil prices caused by the Middle East conflict still needs time to observe, and generally speaking, rising oil prices can both push up inflation and drag down economic growth. The Federal Reserve is expected to remain on hold at least until its next FOMC meeting in April. However, at the time of writing, WTI crude oil futures prices are approaching $100 per barrel, up more than 70% from the end of last year ($57.07). The longer high oil prices persist, the more the financial markets will back their expectations for a US interest rate cut, and the more likely it is to trigger a deterioration in investor sentiment, which warrants vigilance.