The Federal Reserve maintained interest rates at 3.5% to 3.75% on March 18, 2026, as the Federal Open Market Committee (FOMC) cited economic uncertainty, including the impact of the Iran conflict, in its decision. The FOMC voted 11-1 to keep rates steady following three consecutive cuts late last year.
Fed’s Economic Projections Signal Limited Rate Reductions
The Fed’s Summary of Economic Projections (SEP) showed the median forecast for the federal funds rate at 3.4% by the end of 2026 and 3.1% by the end of 2027, indicating only one 25 basis point cut this year and one cut the following year. Federal Reserve Chair Jerome Powell emphasized that these forecasts represent individual assessments under likely economic scenarios, not a committee decision.
Projections for inflation remained above the Fed’s 2% target, with the preferred personal consumption expenditures (PCE) index expected to reach 2.7% by year-end, up from 2.4% in December. Core PCE inflation was also revised upward to 2.7%. Powell acknowledged that progress in reducing inflation has been slower than anticipated.
Market Response and Conditional Outlook on Rate Cuts
Markets have adjusted expectations following the Fed’s announcement, with the CME FedWatch tool indicating an 89.2% chance that rates will remain unchanged after the June meeting. This reflects increased caution compared to earlier predictions of cuts beginning as soon as June.
Powell noted that future rate cuts hinge on continued progress in controlling inflation and economic performance. He highlighted potential easing of tariff inflation midyear as a factor that could support rate reductions but stressed that insufficient progress could delay or halt cuts.
The Fed continues to monitor geopolitical developments, particularly the Iran conflict, for their impact on inflation and monetary policy.
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