The Federal Reserve announces no interest rate cut! Powell signals a "hawkish" stance

Source: Securities Times Net Author: Zhou Le

The Federal Reserve continues to “hold steady.”

At 2:00 a.m. Beijing time on March 19, the Federal Reserve announced it will keep the target range for the federal funds rate unchanged at 3.50%–3.75%, in line with widespread market expectations. The policy statement noted that the impact of the conflict in the Middle East on the U.S. economy remains uncertain. In addition, according to the latest published rate dot plot, the Fed’s decision-makers expect to cut rates once this year and cut again in 2027, but the specific timing remains unclear.

Subsequently, Fed Chair Jerome Powell’s remarks at the press conference released “hawkish” signals. He said that U.S. inflation is stubborn and uncertainty about the outlook is rising; if inflation shows no progress, he will not cut rates. He also mentioned that some Fed officials are inclined to reduce the number of rate cuts in the future.

Affected by the Fed’s “hawkish” signals layered with the escalation of the Middle East situation, all three major U.S. stock indexes fell sharply. By the close, the Dow fell 1.63%, and the S&P 500 fell 1.36%, with both finishing at new lows since November last year; the Nasdaq fell 1.46%. Large technology stocks moved down across the board, with Amazon down more than 2%, and Apple, Google, Microsoft, Meta, Broadcom, and Tesla all down more than 1%. Nvidia fell 0.84%. Analysts have warned that ongoing energy shocks can lead to inflation and growth beginning to slow down, which would be a “dangerous combination,” making it more challenging for the Fed to balance its various responsibilities.

The Fed announced: no rate cut

On March 18, U.S. Eastern time, against the backdrop of the Middle East tensions continuing to escalate and driving a surge in oil prices, the Federal Open Market Committee (FOMC) of the Federal Reserve issued its latest interest-rate decision, keeping the target range for the federal funds rate unchanged at 3.50%–3.75%, in line with market expectations.

This marks a pause in rate cuts at the Fed’s second consecutive meeting after three consecutive rate cuts up to the end of last year.

The decision to pause rate cuts this time did not receive unanimous support from all FOMC voting members. The FOMC statement said that among 12 FOMC voting members, one voted against—Fed Governor Stephen Miran—who still leans toward cutting rates by 25 basis points.

The Fed has seen dissenting votes in each of the past six FOMC meetings, highlighting that internal disagreements within the Fed are growing more severe.

In fact, the market already had ample expectations for the Fed’s decision to pause rate cuts. On the eve of the FOMC meeting, CME Group’s Fed watcher tool showed that interest-rate market traders estimated the probability of the Fed pausing rate hikes at nearly 99%.

Compared with the previous meeting, the biggest difference in this meeting’s statement is the addition of a sentence regarding the situation in the Middle East.

The statement said that the Iran war that broke out three weeks ago brought additional uncertainty. The conflict and its impact on the Strait of Hormuz disrupted global oil markets and may keep inflation higher than the Fed’s 2% target. The statement said, “The developments in the Middle East remain uncertain in terms of their impact on the economy.”

The rate dot plot released after the meeting showed that Fed officials broadly expect one rate cut this year and another in 2027, but the specific timing is still unclear.

Among the 19 FOMC members, 7 expect that there will be no rate cuts this year, an increase of 1 compared with the prediction in December last year. The median indicates that there will be further rate cuts in 2027, after which the federal funds rate will stabilize around the long-term level of about 3.1%.

Fed officials’ statements about the outlook for the U.S. economy have not changed much, but they slightly raised their expectations for full-year economic growth and inflation for 2026.

In the latest economic projections, Fed officials expect U.S. gross domestic product (GDP) to grow 2.4% this year, slightly higher than the forecast in December last year (2.3%); growth in 2027 is expected to be 2.3%, up 0.3 percentage points from the earlier projection.

Powell releases “hawkish” signals

Since the pause in rate cuts has already been priced in by the market, what investors are paying more attention to is Powell’s latest remarks.

At a press conference held at 2:30 a.m. Beijing time, he warned that U.S. inflation is stubborn and uncertainty about the outlook is rising—from the Middle East situation to tariff disruptions, various variables are interrupting the cadence of inflation easing.

Powell said clearly that he will not consider cutting rates before he sees inflation improve further; at the same time, discussion inside the committee has already begun about whether “it might be possible to raise rates next,” although that is still not the baseline scenario assumed by most officials.

Powell opened by saying that the U.S. economy is expanding, inflation remains somewhat too high, consumer spending is resilient, but activity in the housing sector is weak. He believes the current policy stance is appropriate, “which helps achieve our goals.”

Powell reiterated that demand in the U.S. labor market has clearly cooled, but the unemployment rate has not changed much since last summer, and the rate-cut measures taken in the past should help stabilize the labor market.

In the Q&A session, Powell added that the labor market does have downside risks, but multiple employment indicators show that the employment market has a degree of stability.

Powell specifically pointed out that the impact of the Middle East situation remains unclear, and the firm will closely monitor various risks; it is still too early to judge the scope and duration of the economic impact.

When discussing U.S. inflation, he said that recent inflation expectations have risen, and higher energy prices will raise overall inflation; some of the oil shock will show up in core inflation.

In the Q&A session, Powell acknowledged that it is concerning that inflation is far above the 2% target. At this meeting, many people mentioned that short-term inflation expectations are rising, and everyone agreed that inflation expectations will be watched extremely closely.

Powell said that the rate forecast dot plot is not a pre-set path, and the Fed will make decisions at subsequent meetings one by one. Some people are inclined to reduce the number of rate cuts in the future.

In the Q&A session, Powell said that slow progress on tariffs affects the inflation forecast and that it may require more time. Longer periods of high oil prices would weigh on consumption. “We really don’t know what impact higher energy prices will have.”

He added that oil shocks can be offset by the United States’ energy production. If oil companies believe this upward trend will continue, they will increase production.

Powell believes the current policy stance is about right—right on the edge between tight and not tight. Policy rates are at the upper end of the neutral range, or slightly tight.

Powell said that if, at the end of his term as Fed chair, his successor has not yet been confirmed, then he will continue to serve as an “acting chair” until his successor is formally confirmed.

(Editor: Wen Jing)

Keywords:

                                                            Federal Reserve
                                                            Interest rate