Stocks and Gold slid on a hawkish hold by the Fed amid the Trump-led Iran war & oil surge.
On Wednesday, March 18, 2025, the focus of the market was on the FOMC meeting, the latest SEP (Summary of Economic Projections), the Fed’s policy decisions, and Chair Powell’s pressers. As highly expected, the Fed holds all of its key policy rates in March '26 and January '26, after cutting rates cumulatively 75 bps in 2025. Although the Fed largely left the SEP of another 25 bps rate cut in 2026, Chair Powell didn’t rule out a rate hike either.
Fed Chair Powell
acknowledged that the Fed is indeed discussing a rate hike amid the surge in
oil prices as a result of Trump’s Iran war, although Powell/the Fed also
pointed out that the surge in oil prices may be transient. Overall, the market
earlier expected a 50 bps Fed rate cut in 2026 (June & December),
especially under the new Fed Chair (after Powell’s exit). But now Powell made
it clear that he will continue as ‘Protem Chair’ till the next Fed Chair is
finalized by the US Congress.
On March 18, the
Fed holds the target range for:
●
The Federal Fund's Rate (FFR—interbank
rate—SOFR) is 3.6% (median of 3.75-3.50%)
●
Primary credit rate (repo rate): 3.75%
●
IOER (reverse repo rate): 3.65%;
●
Overnight repurchase (ONRP) agreement
rate (ONRP): 3.75%
●
ONRRP (Overnight Reverse Repurchase
Agreement Rate) to 3.50%.
The Fed also
closed the QT in December '25 and started the mini backdoor QE-5 (RMPs)—Reserve
Management purchases at $40B/M (open-ended) to ensure an ample reserve in the
balance sheet (B/S).
Full text of
Fed’s statement: March 18, 2026
Federal Reserve
issues FOMC statement
Available
indicators suggest that economic activity has been expanding at a solid pace.
Job gains have remained low, and the unemployment rate has been little changed
in recent months. Inflation remains somewhat elevated.
The Committee
seeks to achieve maximum employment and inflation at the rate of 2 percent over
the longer run. Uncertainty about the economic outlook remains elevated.
The implications
of developments in the Middle East for the U.S. economy are uncertain. The Committee is
attentive to the risks to both sides of its dual mandate.
In support of its
goals, the Committee decided to maintain the target range for the federal funds
rate at 3‑1/2 to 3‑3/4 percent. In
considering the extent and timing of additional adjustments to the target range
for the federal funds rate, the Committee will carefully assess incoming data,
the evolving outlook, and the balance of risks. The Committee is strongly committed
to supporting maximum employment and returning inflation to its 2 percent
objective.
In assessing the
appropriate stance of monetary policy, the Committee will continue to monitor
the implications of incoming information for the economic outlook. The
Committee would be prepared to adjust the stance of monetary policy as
appropriate if risks emerge that could impede the attainment of the Committee's
goals. The Committee's assessments will take into account a wide range of
information, including readings on labor market conditions, inflation pressures
and inflation expectations, and financial and international developments.
Voting for the
monetary policy action were Jerome H. Powell, Chair; John C.
Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Beth
M. Hammack; Philip N. Jefferson; Neel Kashkari; Lorie K. Logan; Anna Paulson;
and Christopher J. Waller. Voting against this action was Stephen I.
Miran, who preferred to lower the target range for the federal funds rate
by 1/4 percentage point at this meeting.
The Fed held the
rate with 11:1 votes in March '26 against market expectations and 10:2 in
January ’26
Implementation
Note issued March 18, 2026
Decisions
Regarding Monetary Policy Implementation
The Federal
Reserve has made the following decisions to implement the monetary policy
stance announced by the Federal Open Market Committee in its statement on March
18, 2026:
● The
Board of Governors of the Federal Reserve System voted unanimously to maintain
the interest rate paid on reserve balances at 3.65 percent, effective March 19, 2026.
As part of its
policy decision, the Federal Open Market Committee voted to direct the Open
Market Desk at the Federal Reserve Bank of New York, until instructed
otherwise, to execute transactions in the System Open Market Account in
accordance with the following domestic policy directive:
Effective March
19, 2026, the Federal Open Market Committee directs the Desk to:
● Undertake
open market operations as necessary to maintain the federal funds rate in a
target range of 3 1/2 to 3 3/4 percent.
● Conduct
standing overnight repurchase agreement operations at a rate of 3.75 percent.
● Conduct
standing overnight reverse repurchase agreement operations at an offering rate
of 3.5 percent and with a per-counterparty limit of
$160 billion per day.
● Increase
the System Open Market Account holdings of securities through purchases of
Treasury bills and, if needed, other Treasury securities with remaining
maturities of 3 years or less to maintain an ample level of reserves.
● Roll
over at auction all principal payments from the Federal Reserve's holdings of
Treasury securities. Reinvest all principal payments from the Federal Reserve's
holdings of agency securities into Treasury bills."
● In a
related action, the Board of Governors of the Federal Reserve System voted
unanimously to approve the establishment of the primary credit rate at the
existing level of 3.75 percent.
Fed’s key rate details
Fed’s SEP for
March '26: For 2026
●
Real GDP Growth: 2.4% vs 2.3% prior;
actual 1.7% for 2025
●
Unemployment rate: 4.4% vs 4.4%
prior; actual 4.5% for 2025
●
Annual core PCE Inflation: 2.7% vs
2.5% prior; actual 3.0% for 2025
●
Projected rate cuts for 2026: -25 bps
each in 2026, 2027, and 2028 vs -25 bps
prior; actual -75 bps for 2025
●
Projected terminal rate, core PCE
inflation, real GDP growth, and unemployment
rate: 3.0%, 2.0%, 1.8%, and 4.2% (largely
unchanged from Dec’25 SEPs)
Fed’s Statement
Difference-Red lines –January & March’26
Full text of Fed
Chair Powell’s opening statement: March 18, 2026
Good afternoon.
My colleagues and I remain squarely focused on achieving our dual mandate goals
of maximum employment and stable prices for the benefit of the American people.
The U.S. economy has been expanding at a solid pace. While job gains have
remained low, the unemployment rate has been little changed in recent months,
and inflation remains somewhat elevated.
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 maximum employment and 2
per cent inflation goals. The implications of developments in the Middle East
for the U.S. economy are uncertain. We will remain attentive to risks to both
sides of our dual mandate. I will have more to say about monetary policy
after briefly reviewing economic developments.
Available
indicators suggest that economic activity has been expanding at a solid pace.
Consumer spending has been resilient, and business fixed investment has
continued to expand. In contrast, activity in the housing sector has remained
weak. In our Summary of Economic Projections, the median participant projects
that real GDP will rise 2.4 per cent this year and 2.3 per cent next year,
somewhat stronger than projected in December.
In the labour
market, the unemployment rate was 4.4 per cent in February and has changed
little since late last summer. Job gains have remained low. A good part of the
slowing in the pace of job growth over the past year reflects a decline in
the growth of the labour force, due to lower immigration and labour force
participation, though labour demand has clearly softened as well. Other
indicators, including job openings, layoffs, hiring, and nominal wage growth,
generally show little change in recent months. In our SEP, the median
projection of the unemployment rate is 4.4 percent at the end of this year and
edges down thereafter.
Inflation has
eased significantly from its highs in mid-2022 but remains somewhat elevated
relative to our 2 percent longer-run goal. Estimates based on the Consumer
Price Index and other data indicate that total PCE prices rose 2.8 percent over
the 12 months ending in February and that, excluding the volatile food and
energy categories, core PCE prices rose 3.0 percent. These elevated readings
largely reflect inflation in the goods sector, which has been boosted by the
effects of tariffs.
Near-term
measures of inflation expectations have risen in recent weeks, likely
reflecting the substantial rise in oil prices caused by supply disruptions in
the Middle East. Most measures of longer-term expectations remain
consistent with our 2 percent inflation goal. The median projection in the SEP
for total PCE inflation this year is 2.7 percent and 2.2 percent next year, a
bit higher than projected in December.
Our monetary
policy actions are guided by our dual mandate to promote maximum employment and
stable prices for the American people. At today’s meeting, the Committee
decided to maintain the target range for the federal funds rate at 3-1/2 to
3-3/4 percent. From last September through December, we lowered our policy
rate by 3/4 percentage point, bringing it within a range of plausible estimates
of neutral. This normalization of our policy stance should continue to
help stabilize the labor market while allowing inflation to resume its downward
trend toward 2 percent.
But the
implications of events in the Middle East for the U.S. economy are uncertain.
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. We will continue to monitor the risks to both sides of our mandate. We are
well-positioned to determine the extent and timing of additional
adjustments to our policy rate based on the incoming data, the evolving
outlook, and the balance of risks.
In our SEP, FOMC
participants wrote down their individual assessments of an appropriate path of
the federal funds rate, under what each participant judges to be the most
likely scenario for the economy. The median participant projects that the
appropriate level of the federal funds rate will be 3.4 percent at the end of
this year and 3.1 percent at the end of next year, unchanged from December. As
is always the case, these individual forecasts are subject to uncertainty, and
they are not a Committee plan or decision. Monetary policy is not on a preset
course, and we will make our decisions on a meeting-by-meeting basis.
To conclude, the
Fed has been assigned two goals for monetary policy: maximum employment and
stable prices. We remain committed to supporting maximum employment, bringing
inflation sustainably to our 2 percent goal, and keeping longer-term inflation
expectations well anchored. Our success in delivering on these goals matters to
all Americans. We at the Fed will continue to do our jobs with objectivity,
integrity, and a deep commitment to serve the American people. Thank you. I
look forward to your questions.
Highlights of Fed
decision and Fed Chair Powell’s statements/comments in the Q&A: March 18,
2026
●
US Interest Rate Decision Actual
3.75% (Forecast 3.75%, Previous 3.75%)
●
Fed Median Rate Forecast (Long Run): Actual 3.125% (Forecast 3.125%, Previous 3%)
●
Fed Median Rate Forecast (Next Yrs.)
Actual 3.125% (Forecast 3.125%, Previous 3.375%)
●
Fed Median Rate Forecast (Next 2
Yrs.) Actual 3.125% (Forecast 3.125%, Previous 3.125%)
●
Fed Median Rate Forecast (Current): Actual 3.375% (Forecast 3.375%, Previous 3.625%)
●
Fed projections imply 25 basis points
of rate cuts in 2026 and 25 basis points of cuts in 2027
● Federal
Reserve projections show seven policymakers saw no rate cut in 2026, and one sees rates higher in 2027.
●
Fed policymakers see a 4.4% unemployment rate at the end of 2026 compared to 4.4% in December projections.
●
Federal Reserve policymakers see
end-2026 PCE inflation at 2.7% compared to 2.4% in December; core is seen at
2.7% compared to 2.5%
●
Fed policymakers see 2.4% GDP growth
in 2026 compared to 2.3% in December and see
longer-run growth at 2.0% compared to 1.8% in December.
●
Fed maintains projections for one
rate cut in 2026 and one in 2027
●
Implications of Middle East
developments are uncertain
●
Fed holds benchmark rate in
3.5%-3.75% range in an 11-1 vote
● Miran
dissents in favour of a rate cut
● US
interest rate futures see 21 BPS of easing in 2026, unchanged from the prior Fed statement.
Fed Chair Powell
discusses the outlook after holding rates steady
●
Inflation remains somewhat elevated
●
The policy stance is appropriate
●
We will remain attentive to risks on
both sides of the mandate
●
Implications of Middle East
developments uncertain
●
Consumer spending is resilient
●
The unemployment rate has changed
little since last summer
● Estimate
February PCE inflation 2.8%, core PCE at 3%
● Elevated
inflation largely reflects goods, largely from tariffs
●
Near-term inflation expectations have
been up in recent weeks due to the Middle East
●
Most longer-term expectations are
consistent with the 2% goal
● Last
year's rate cuts brought a plausible
estimate of neutral
● Near-term
higher energy prices will push up overall inflation
● Past
rate cuts should help stabilise the labour market
●
It's too soon to know
the scope and duration of energy market effects on the economy
●
We are well aware that a series of
inflation shocks has interrupted the progress that we have made over time.
There will be some effects on inflation coming forward.
●
This year, it is really important to
see progress on the reduction in goods inflation to understand if we are making
progress.
●
Whether we look at energy inflation doesn't arise until we check the box on
goods inflation.
●
Looking through oil prices depends on
inflation expectations and the broader context of the five years above target.
●
Powell: Median of rate-path
projections didn't change, but there was a meaningful move of people to fewer
cuts
●
The forecast is that we will be
making progress on inflation, though not
as much as hoped.
●
Progress on tariff inflation should be seen by the middle of the year
● If I
don't see inflation progress, you won't see the rate cut.
●
A part of the oil shock is the
forecast for higher inflation, but we haven't seen the hoped-for progress on
inflation.
●
Some of the oil shock will show up in
core inflation
●
We believe we will see progress on
tariff inflation, but it may take more time
●
I really want to emphasise that no one knows the economic effect of the Middle East
conflict
●
There is no conviction on what people
are writing down in projections
●
We just don't know what effects the
rise in energy will have
●
A long period of higher gas prices
would weigh on consumption, but I don't know if that will happen
●
If we were ever going to skip an SEP,
this would be a good one
●
Inflation overshoot is mainly from
goods and tariffs.
●
Growth has been solid, with inflation overshooting
mainly in goods
●
There is a very low breakeven rate
for jobs
●
Oil companies will want to see a
consistent rise in oil prices and believe that it's persistent to
increase production.
●
The net of the oil shock will still
be some downward pressure on spending and employment,
and upward inflation pressure.
●
The current policy stance is
appropriate.
●
The fact that it's been five years of
above-target inflation makes you worry that a shock could
cause trouble for inflation expectations.
●
We're very strongly committed to
keeping inflation expectations anchored at 2%
●
The policy rate is
high-end of neutral, or mildly or moderately restrictive.
●
We're waiting for the tariff
pass-through process to go through the system, so goods inflation returns to previous levels.
●
Disinflation in goods is not coming
from restrictive policy
● We
don't want too restrictive a policy because of downside labour market risks
●
We are in a difficult situation, and we have to balance
risks
●
It is frustrating that non-housing
services inflation hasn't come down
●
The labour market is clearly not a source of inflationary pressures
●
We want to see continued progress on
housing services, finally seeing goods inflation come back down, and get help
from non-housing services
●
I would not say employment is more at
risk than inflation
●
Being well-above the 2% inflation
target is a concern
● If no
Fed chair is confirmed by the end of my term, I would serve as chair pro tem
● I
have no intention of leaving the Fed board until the DOJ probe is over
●
We need to put together the January
and February report (on assessing the labour
market)
● A
good number of people on the Fed committee are concerned about very, very low
job creation
● There
is effectively zero net job growth in the private sector, but that seems to be what the economy needs
● Zero
employment growth equilibrium is balanced, but it has the feel of a downside
risk
● We're
watching the zero job growth equilibrium carefully, and we can argue it's a
consequence of deliberate policy on immigration
● This
energy supply shock is a one-time thing
●
Asked what happened about the Fed's
review of communications policy: Not much
●
I wish we had been able to do some
things on communications. Maybe the next chair will take a look.
● The
vast majority of participants don't see a hike as a base case
● We
did have a conversation today about possible two-sided risks to rates
● The
possibility that the next move might be a hike did come up
● At
this meeting, several people
mentioned that short-term inflation expectations rose
●
On long-term inflation expectations:
The majority of things we look at show they are solid
●
Everyone agrees to watch inflation
expectations extremely carefully
● Growth
upgrade likely due to growing confidence in productivity
● SEP
GDP projections show growing confidence in productivity
●
Stagflation of the 1970s is not the
case right now
●
We're trying to manage our way
through the tension between two goals, but this is not stagflation
●
I don't have a forecast for oil
prices after the war ends
●
We hope the gas price increase is not
for a long period; we don't want to speculate
●
We will learn a lot before the next
meeting
●
At the next meeting, what happens in the
Middle East will be a big factor
●
The US economy has been strong
through a whole bunch of challenges
● I
would not say that I'm certain that tariffs will be a one-time effect, not at
all certain
●
Inflation is an ongoing increase in
prices, not a one-time increase, and in theory, tariffs should be one-time
●
We don't know how long it will take
for tariffs to go through the economy
●
We have to be humble about the
timeline for tariff pass-through
●
The SEP is never locked in; people are more than happy to change their dots. No one is
bound by their SEP dot. People are more than happy to be proven wrong in either
direction
●
For this SEP, it's better than usual
to take projections with a grain of salt
●
People feeling squeezed is a very
real thing, which makes us more committed to getting
inflation back down
●
Independence is what allows us to do
our jobs
●
I can't answer the triggers for rate hikes
●
There are lots of ways
that oil prices get into transportation, which can leak into the core.
●
I will stay on as head
of the Fed until Warsh is confirmed
●
The upward revision in growth
projections is due to productivity
●
Higher productivity so far isn't due
to generative AI; it could be due to adjustments during
the pandemic
●
I never thought I'd see this many
years of higher productivity. Generative AI should contribute to that
●
Higher productivity is a great thing
●
We haven't started to see the
productivity effects from AI
●
Have to be cautious about thinking
that generative AI will be disinflationary
● In
the short term, building data centres pushes
inflation up at the margin; it also probably raises the neutral rate
● Can't
answer triggers for rate hikes
●
An energy shock may or
may not make a big imprint on the economy
●
Independence is what allows us to do
our jobs
●
Support for federal independence among democrats, the House, and the Senate
●
Central bank independence has a lot
of support in Congress
● The vast majority of participants don't see hike as a base case,
but we don't take things off the table
Conclusions
Fed Chair Powell
clearly said the average US unemployment rate (3MA) is now around 4.3%, almost
in line with the Fed’s longer-term sustainable maximum unemployment rate
(target) of 4.0%. But 3MA core PCE inflation at 3.0% is much higher than the
2.0% target. The Fed needs to bring down core PCE inflation by around 100 bps
and the unemployment rate by 30 bps for its dual mandate of maximum employment
and price stability. Thus, the Fed has to be around neutral or slightly
restrictive to bring down core PCE inflation below 2.0% by keeping the
unemployment rate around 4.0%.
In the longer
run, the Fed usually considers the average of core CPI and PCE inflation for
1.9% as inflation and 3.5% as unemployment targets. But for such a goldilocks
economic scenario, the Fed needs policy certainty and no supply chain
disruptions (like Trump’s Iran war, Tariff & Trade war, etc.). Till then,
under Trump (November '28), the Fed may be under some types of political and
policy uncertainty and may not be able to achieve such a goldilocks outcome.
As the present
weakness in the US labour market is largely structural due to Trump policy
uncertainty and AI issues, the Fed’s rate cuts may not ensure higher
employment; it’s now a supply issue, rather than demand; the Fed’s policy tool
largely works on demand management, not supply. Some Trump MAGA supporters
argue that if the Fed cuts the rate further, then companies/businesses will
borrow more to employ more people. But this is a bizarre idea. The US needs to
impose a fair AI policy to ensure no structural harm in the labour market,
while keeping corporate America in good shape. Trump also needs to ensure a
middle ground in tariff policies to ensure price stability, considering the
harsh reality on the ground.
The focus of the
market is now on Ithe ran war trajectory.
As of now, psycho
Trump is set to lose the November’26 US mid-term election and the
House/Trifecta.
The US economy
may face stagflation or even an all-out recession in 2026-28 amid an
increasing private credit bubble, subprime/prime crisis (loan
defaults/delinquencies, etc.), Trump’s chaotic policies, lingering Iran war, or
even a mini WW-III and a looming AI/Crypto bubble. Thus, the Fed may also have
to go to almost ZIRP and QE-4 (?) by 2027-28 (as usual).
Bottom line
Market impact:
As of March 19,
2025, financial markets have shown increased volatility and a clear risk-off
mode; Gold and Silver plunged on hawkish hold by the Fed and suspected selling
of precious metals by Middle East investors to fund the economy as oil revenue
crashed. Wall Street Futures also tumbled.
Technical
outlook: DJ-30, NQ-100, SPX-500 and Gold
Looking ahead,
whatever may be the narrative, technically Dow Future (CMP: 45800) now
has to sustain over 46600 for a further rally to 47500/47800-48300/48800 and
49150*/49500-49700/50000-506000/51000 in the coming days; otherwise sustaining
below 46400, DJ-30 may fall to 46000/45700*-45200*/45000 and
43800/43000-42000/39000-36800 in the coming days (base to worst case scenario).
Similarly, NQ-100
Future (24200) now has to sustain over 24100 for a further rally to
24600/25000-25500/26000 and 26200/26500-26700/27000 in the coming days;
otherwise, sustaining below 24000/23900, NQ-100 may fall to
23600/23300-22800/22400 and 21900-21000 in the coming days.
Looking at the
chart, technically SPX-500 (CMP: 6625) now has to sustain over 6600 for a
further rally to 6700/6800-6885/6925 and 6955/6975-7000/7100 and
7200/7300-7500/8300 in the coming days; otherwise, sustaining below
6600-6500/6450, it may further fall to 6350/6300-6250/6180 and 5860-4800 in the
coming days.
Looking at the
chart, Technically Gold (CMP: 4650) has to sustain over 4700-4755 to
4900/5000-5050/5200 and 5400-5600 zone in the coming days; otherwise sustaining
below 4675-4600, Gold may again fall to 4500/4390-4300/4260*-4230/4170 and
4135/4110-3940/3820 and 3745/3680-3640/3600 levels in the coming days.
