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

Source: Securities Times Network Author: Zhou Le

The Federal Reserve continues to “stand pat.”

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 specific timing is still unclear.

Following this, Fed Chair Jerome Powell’s remarks at the press conference sent a hawkish signal. He stated that U.S. inflation remains stubborn, and uncertainty about the outlook has increased. 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 tone and escalating Middle East tensions, the three major U.S. stock indices all fell sharply. By the close, the Dow dropped 1.63%, the S&P 500 fell 1.36%, both hitting their lowest levels since November last year; the Nasdaq declined 1.46%. Large tech stocks all declined, with Amazon down over 2%, and Apple, Google, Microsoft, Meta, Broadcom, and Tesla each down more than 1%. Nvidia fell 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, maintaining the federal funds rate target range at 3.50%–3.75%, in line with market expectations.

This marks the second consecutive FOMC meeting since the end of last year where rate cuts were paused after three consecutive reductions.

The decision to pause rate cuts was not unanimous. The FOMC statement noted that out of 12 voting members, one, Federal Reserve Board Governor Stephen Miran, voted against the decision, still 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 that the Fed would hold rates steady.

Compared to the previous meeting, the most notable addition in this statement was a reference to Middle East tensions.

The statement said that the conflict that erupted three weeks ago in Iran has added uncertainty. The conflict and its impact on the Strait of Hormuz have disrupted global oil markets and could keep inflation above the Fed’s 2% target. The statement noted: “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 do not expect a rate cut this year, an increase of one from December last year. The median projection indicates further rate 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 changed little but have slightly raised expectations for economic growth and inflation in 2026.

In the latest economic forecasts, 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%, an upward revision of 0.3 percentage points.

Powell Sends Hawkish Signal

Since the rate pause was fully priced in by the market, attention shifted to 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 the outlook has become more uncertain—from Middle East tensions to tariff disruptions, various variables are disrupting the inflation decline.

Powell clearly stated that he would not consider a rate cut until further progress is seen in inflation; meanwhile, the committee has begun discussing the possibility of rate hikes, 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 the current policy stance is appropriate, “helping to achieve our goals.”

Powell reiterated that demand in the 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.

During the 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 that recent inflation expectations have risen, energy price increases will push up overall inflation, and some oil shocks will be reflected in core inflation.

In the Q&A, Powell acknowledged 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.

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

During the Q&A, Powell said that slow progress on tariffs affects inflation forecasts and may require more time. Prolonged high oil prices will weigh on 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 just right, at the edge of tightening and easing. The policy rate is in the higher end of the neutral zone, or slightly restrictive.

He stated that if he does not have a confirmed successor by the end of his term as Fed chair, he will continue to serve as “acting chair” until a new one is officially appointed.