Fed leaves rates unchanged, sticks with single cut in 2026 despite higher inflation

Record ID: 2366754

  • Title: Fed leaves rates unchanged, sticks with single cut in 2026 despite higher inflation
  • Date: 18th March 2026
  • Summary: WASHINGTON, D.C., UNITED STATES (MARCH 18, 2026) (UNRESTRICTED POOL) VARIOUS OF U.S. FEDERAL RESERVE CHAIRMAN, JEROME POWELL, APPROACHING MICROPHONE (SOUNDBITE) (English) FEDERAL RESERVE CHAIRMAN, JEROME POWELL, SAYING: “Today, the FOMC decided to leave our policy rate unchanged. We see the current stance of monetary policy as appropriate to promote progress toward our max
  • Embargoed:
  • Keywords: FOMC Jerome Powell The Federal Reserve fed chair inflation press conferece rate cut rate hike
  • Location: WASHINGTON, D.C., UNITED STATES
  • City: WASHINGTON, D.C., UNITED STATES
  • Country: US
  • Topics: North America,Government/Politics
  • Reuters ID: LVA001533318032026RP1
  • Aspect Ratio: 16:9
  • Story Text: The U.S. central bank held interest rates steady on Wednesday (March 18) and projected higher inflation, steady unemployment and a single reduction in borrowing costs this year, a path that Federal Reserve Chair Jerome Powell said was subject to unusually high uncertainty as policymakers take stock of the impact of the U.S. and Israeli war with Iran.
    "In the near term, higher energy prices will push up overall inflation, but it is too soon to know the scope and duration of the potential effects on the economy," Powell said in a press conference following the Fed's 11-1 decision to maintain its benchmark overnight interest rate in the 3.50%-3.75% range. "The thing I really want to emphasize is that nobody knows: the economic effects could be bigger, they could be smaller; they could be much smaller or much bigger; we just don't know."
    New projections showed Fed policymakers as a group expect to cut the policy rate by a quarter of a percentage point by the end of this year, a view that on the surface was unchanged from their last set of projections in December.
    And the possibility that the Fed's next move "might be an increase did come up at the meeting as it did at the last meeting," Powell said, though he added that the "vast majority" of the officials don't have that outcome as their base case.
    Monetary policy, he repeated, is "well positioned to determine the extent and timing of additional adjustments to our policy rate based on the incoming data, evolving outlook, and the balance of risks."
    Asked about the current U.S. economic situation, Powell said that even with the Iran war-induced spike in energy prices, the economy remained far removed from the "stagflation" of the 1970s, noting that inflation is currently only about one percentage point above target while unemployment remains low.
    "I would reserve the term 'stagflation' for a much more serious set of circumstances. That is not the situation we're in," Powell said.
    "What we have is some tension between the goals, and we're trying to manage our way through it," Powell added. "It's a very difficult situation, but it's nothing like what they faced in the 1970s."
    While there is an expectation that the impact of tariffs on inflation will fade over time, Powell stressed that there is still considerable uncertainty about how that will play out.
    "We have to be humble about knowing how long it will take for tariffs to pass all the way through the economy," he said, adding that the situation has been complicated by shifting import tax levels amid recent court action.
    Powell's remarks prompted traders to pile into bets that the Fed will wait until next year to cut rates. U.S. stocks slumped, with the S&P 500 index falling about 1.4% to its lowest close in nearly four months. The dollar jumped against a basket of currencies while U.S. Treasury yields rose.
    The Fed is in the difficult position of needing to balance the risk of higher inflation amid a fresh shock and downside risks to the labor market, said Powell, whose term as Fed chief ends in May.
    ONE FED POLICYMAKER DISSENTS
    Fed policymakers now expect inflation, as measured by the central bank's preferred gauge, to end the year at 2.7%, not far below the current rate and higher than the 2.4% projected in December, reflecting fallout from the spike in global oil prices that followed the start of the bombing campaign against Iran.
    But the higher inflation projections also are due to stickier tariff-driven inflation slowing progress towards the Fed's 2% inflation goal, Powell said.
    The new rate and economic projections showed the Fed, for now, largely looking through the oil shock, with policymakers still expecting to lower rates this year and anticipating inflation to be 2.2% by the end of 2027.
    Notably, no policymakers saw rates needing to move higher by the end of this year, though one official anticipated a rate hike in 2027.
    Economic growth was upgraded slightly, to 2.4% for 2026 versus 2.3% in December, and the projected unemployment rate was unchanged at 4.4%.
    Fed Governor Stephen Miran continued his string of dissents, voting against the policy decision in favor of a rate cut.
    POLICY STATEMENT LARGELY UNCHANGED
    The decision to hold the policy rate steady was widely expected in financial markets, but the projections provide fresh information about how the U.S. central bank is assessing the economic impact of a war that has disrupted global oil markets.
    Oil prices have jumped from below $80 a barrel to $108 ahead of the Fed's policy decision, with U.S. gasoline prices also spiking and new inflation data showing wholesale prices rising faster than expected even before the conflict began.
    Other than the reference to the war, the Fed's new statement was little changed from the one issued at the end of its January 27-28 meeting.
    (Production: Kyoko Gasha)
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