Federal Reserve Announces No Rate Cut! Powell Sends "Hawkish" Signal

Source: Securities Times Network Author: Zhou Le

The Federal Reserve continues to hold steady.

At 2 a.m. Beijing time on March 19, the Federal Reserve announced that the federal funds rate range would remain unchanged at 3.50%–3.75%, in line with market expectations. The policy statement mentioned that the impact of Middle East conflicts on the U.S. economy remains uncertain. Additionally, the latest dot plot indicates that Fed policymakers expect one rate cut this year and another in 2027, but the timing is still unclear.

Following this, Fed Chair Jerome Powell’s remarks at the press conference signaled a hawkish stance. He stated that U.S. inflation remains stubborn, and uncertainties are rising. If inflation shows no progress, the Fed will not cut rates. He also mentioned that some Fed officials favor reducing the number of future rate cuts.

Influenced by the hawkish signals and escalating Middle East tensions, U.S. stocks declined sharply. By the close, the Dow fell 1.63%, the S&P 500 dropped 1.36%, both hitting lows not seen since November last year; the Nasdaq declined 1.46%. Major tech stocks all fell: Amazon down over 2%, Apple, Google, Microsoft, Meta, Broadcom, and Tesla all down over 1%, Nvidia down 0.84%. Analysts warn that ongoing energy shocks could lead to inflation and growth slowing down, creating a “dangerous combination” that will pose greater challenges for the Fed in balancing its responsibilities.

Federal Reserve Announces No Rate Cut

On March 18, Eastern Time, amid escalating tensions in the Middle East and soaring oil prices, the Federal Open Market Committee (FOMC) released its latest rate decision, keeping the federal funds rate target at 3.50%–3.75%, in line with expectations.

This marks the second consecutive pause after three consecutive rate cuts at the end of last year.

The decision to pause rate hikes was not unanimous. The FOMC statement noted that out of 12 voting members, one, Federal Reserve Board Governor Stephen Miran, voted against the decision, favoring a 25 basis point cut.

This is the sixth consecutive FOMC meeting with dissenting votes, highlighting increasing internal divisions within the Fed.

Market expectations for the pause were already high. On the eve of the meeting, CME’s FedWatch tool showed that traders priced in nearly a 99% probability of no rate hikes.

Compared to the previous meeting, the main difference in this statement is the addition of a sentence regarding Middle East tensions.

The statement said that the Iran conflict that erupted three weeks ago has added uncertainty. The conflict and its impact on the Strait of Hormuz have disrupted global oil markets and may keep inflation above the Fed’s 2% target. It stated: “The development of the Middle East situation remains uncertain for the economy.”

The dot plot released after the meeting shows that most Fed officials expect one rate cut this year and another in 2027, though the exact timing remains unclear.

Of the 19 FOMC members, 7 expect no rate cuts this year, an increase of one from December last year. The median forecast indicates further cuts in 2027, with the federal funds rate stabilizing around 3.1% in the long term.

Fed officials’ outlooks on the U.S. economy have not changed much but have slightly raised their expectations for economic growth and inflation in 2026.

In the latest economic projections, Fed officials expect U.S. GDP to grow 2.4% this year, slightly higher than the December forecast of 2.3%; for 2027, growth is expected at 2.3%, up 0.3 percentage points from previous estimates.

Powell Signals a Hawkish Stance

Since the rate hike pause was fully priced in, markets are now more focused on Powell’s latest remarks.

At the press conference held at 2:30 a.m. Beijing time, Powell warned that U.S. inflation remains stubborn, and uncertainties are rising—from Middle East tensions to tariff disruptions, various variables are disrupting the inflation decline.

Powell clearly stated that he would not consider rate cuts until further inflation improvement is seen; meanwhile, the committee has begun discussing “the possibility of rate hikes next,” though this is not the baseline scenario for most officials.

He opened by saying that the U.S. economy is expanding, inflation remains slightly high, consumer spending is resilient, but housing activity is weak. He believes current policy stance is appropriate, “helping to achieve our goals.”

Powell reiterated that demand in the U.S. labor market has cooled significantly, but the unemployment rate has remained relatively stable since last summer. Past rate cuts should have helped stabilize the labor market.

In Q&A, Powell added that there are indeed downside risks to the labor market, but several employment indicators show some stability.

He specifically pointed out that the impact of Middle East developments remains uncertain, and the Fed will closely monitor various risks. It is still too early to judge the scope and duration of their impact on the economy.

Regarding U.S. inflation, he said recent inflation expectations have risen, energy price increases will push up overall inflation, and some oil shocks will be reflected in core inflation.

During Q&A, Powell admitted that inflation well above 2% is concerning. Several participants mentioned rising short-term inflation expectations, and all agreed to keep a very close watch on inflation expectations.

He noted that the rate forecast dot plot is not a preset path; future decisions will be made at each meeting. Some officials favor reducing future rate cuts.

In Q&A, Powell said that slow progress on tariffs affects inflation forecasts, and more time may be needed. Prolonged high oil prices could dampen consumption, and “we really don’t know what impact rising energy prices will have.”

He added that oil shocks can be offset by U.S. energy production; if oil companies believe the rise will persist, they will increase output.

Powell believes the current policy stance is appropriate, at the edge of tightening and easing. The policy rate is in the higher end of the neutral zone, possibly slightly restrictive.

He stated that if he leaves the Fed chair position before his successor is confirmed, he will continue as “acting chair” until a formal appointment is made.