FOMC March 2026 Review: Fed status quo on rates; 1 cut projected in '26 & '27 each

The Federal Reserve on Wednesday kept the key lending rate unchanged, as widely expected by economists and markets, acknowleding that the implications of Middle East developments remain uncertain. The Federal Open Market Committee (FOMC) -- the American central bank's top rate-deciding panel headed by Chair Jerome Powell -- continues to project one rate cut each in 2026 and 2027.

The Fed funds range -- or the benchmark interest rate -- stands at 3.50-3.75 per cent, with an 11:1 vote.

The mid-March review comes at a time when analysts closely awaited the central bank's inflation forecasts amid soaring crude oil rates on account of disruptions in the Strait of Hormuz -- a crucial maritime passage normally responsible for the passage of one-fifth of the world's oil and gas supplies.

The ongoing situation in West Asia, with the US-Israel-Iran war nearing the end of its third week, is continuing to keep oil benchmarks close to more than three-and-a-half-year peaks.

Fed GDP and inflation projections

The Committee raised its median GDP growth projection for the year to 2.4 per cent from 2.3 per cent, while reiterating that inflation continues to be at somewhat elevated levels.

However, it also revised upwards its 2026 personal consumption expenditure (PCE) inflation forecast to 2.7 per cent from 2.5 per cent.

It also noted that job gains have stayed low and unemployment little changed compared to its last review.

The Fed also mentioned, just like in its previous statement, that economic activity has been gathering steam at a solid pace.

The status quo also assumes significance as it is contrary to US President Donald Trump's repeated calls for sharp rate cuts.

The 47th American president, who has already picked Kevin Warsh as Powell's successor, has criticised the current chairperson several times for keeping the costs of money at elevated levels.

What Jerome Powell says

"My colleagues and I remain squarely focused on achieving our dual mandate... The US economy has been expanding at a solid pace," said Powell.

"We see the current stance of monetary policy as appropriate to promote progress toward our maximum employment and 2 per cent inflation goals."

He said the Fed remains committed to staying "attentive" to risks to both sides of the dual mandate.

"Given the uncertainty around the Iran crisis, the Fed remains in 'wait-and-see' mode, even as the dot plot shows no change, with one cut each continuing to be signaled in 2026 and 2027," said Madhavi Arora, Lead Economist at Emkay Global Financial Services.

The absence of a bias on either side, said Arora, seems to be the message, signalling that the Fed will be on an extended pause until there is more clarity around the effects of the Iran crisis.

What may RBI do?

Arora believes the RBI may remain constrained in the current scenario.

"A hawkish Fed may add to the RBI’s policy constraints ahead, with the Iran crisis persisting longer than expected. The RBI’s ability to stabilise the rupee through its forex management will be limited in the current scenario and the dilemma for it going ahead will be between forex intervention and tolerance with an April rate cut off the table," added the economist.

Wall Street Update | Dow, S&P 500, Nasdaq continue to reel under pressure

US equity benchmarks extended their intraday losses after the FOMC announcements. The Dow Jones Industrial Average (DJIA) closed 1.6 per cent lower, while the S&P 500 and the technology-heavy Nasdaq Composite fell 1.4 per cent and 1.5 per cent respectively -- within inches from their intraday lows.

The dollar index -- which measures strength in the greenback against six peers excluding the rupee -- finished flat at 100.1.

Brent crude surged 4.0 per cent to $111.7 a barrel while West Texas Intermediate (WTI) gained 1.0 per cent to settle at $96.4 a barrel.