The Federal Reserve held rates at 3.50% to 3.75% and said uncertainty remains elevated as it weighs inflation and labor-market trends.
Inflation is far below its 2022 peak, but higher energy costs could slow further progress back toward the Fed’s 2% goal.
Fed projections still point to one cut in 2026, while market pricing also centers on one cut but leaves room for other outcomes.
The Federal Reserve (Fed) shapes borrowing costs, savings returns, and financial conditions across the economy. At its March 18 meeting, the Federal Open Market Committee (FOMC) kept the federal funds target range at 3.50% to 3.75% and said economic activity has been expanding at a solid pace. The statement also said job gains have remained low, the unemployment rate has been little changed in recent months, and inflation remains somewhat elevated.
The FOMC also made one important change to its message. It said the implications of developments in the Middle East for the U.S. economy are uncertain, which brought energy prices and geopolitics more directly into the policy discussion. 1 Fed Chair Jerome Powell reinforced that point, saying the economy is facing “an energy shock of some size and duration” and that the effects could prove smaller or bigger depending on how events unfold. 2
“The Federal Reserve held rates steady in March because inflation is still above target, job growth has slowed, and higher oil prices added a new layer of uncertainty.”
Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group
That mix helps explain why policymakers stayed on hold. Inflation is far below its 2022 peak, but it has not returned to the Fed’s 2% goal, and the labor market has cooled without clearly breaking down. As Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group, says, “The Federal Reserve held rates steady in March because inflation is still above target, job growth has slowed, and higher oil prices added a new layer of uncertainty.”
Inflation is much lower than it was in 2022, but the path back to the Federal Reserve’s 2% goal looks less clear today. February’s Producer Price Index rose 3.4% from a year earlier, the fastest 12-month increase since February 2025. Goods prices rose 2.5%, services prices rose 3.8%, and a core producer-price measure that excludes food, energy, and trade services rose 3.5% over 12 months. 3
The details show why policymakers are still cautious. Energy-related categories moved higher in February, which points to renewed cost pressure earlier in the supply chain. The Federal Reserve’s Beige Book tells a similar story, with many districts reporting higher costs for insurance, utilities, energy, metals, and other raw materials, while nine districts specifically cited tariffs as a source of higher costs. 4
That does not mean inflation is moving back to 2022 levels. It does mean the final stretch back toward 2% may take longer and may move in fits and starts rather than in a straight line. “Inflation may keep moving lower this year,” says Bill Merz, head of capital markets research for U.S. Bank Asset Management Group. “But higher energy and tariff costs can slow that progress and keep the path uneven.”
Some parts of the inflation picture may still improve from here. The February Consumer Price Index (CPI) increased 2.4% over the prior year, core CPI (excluding food and energy prices) was 2.5%, shelter rose 3.0% over the year, though rent rose only modestly. 3 Those readings support the view that housing costs may continue easing with a lag even if energy prices remain a headwind.
That lag matters because rent trends usually move into official inflation data gradually rather than all at once. Slower rent growth can still offset some pressure from goods and energy prices later this year. The result is an inflation outlook that looks much better than it did in 2022, but less predictable than it did earlier this year.
The Middle East is one reason the path looks less clear. About 20% of global oil and liquefied natural gas move through the Strait of Hormuz. Fertilizer shipments also depend on that route. If shipping remains constrained, higher fuel, transport, and fertilizer costs can work their way into household budgets, business expenses, and food prices over time.
The labor market looks softer than it did a year ago, but it does not look broken. Employers cut 92,000 jobs in February, hurt by winter storms, the unemployment rate rose to 4.4%, and average hourly earnings increased 0.4% for the month and 3.8% over the year. 3 Meanwhile, weekly initial jobless claims declined modestly to 205,000 in the week ending March 14, 5 and announced job cuts fell sharply in February according to Challenger, Grey, and Christmas, which points to slower hiring more than broad layoffs.
That distinction matters for both the economy and the Fed. Slower hiring can cool the labor market without causing the kind of widespread job losses that usually damage consumer spending quickly. As Bill Merz says, “The job market is softer, but it still looks more like reduced hiring than widespread layoffs, and that difference matters for the Federal Reserve.”
The Fed’s March 18 statement used similar language. It said job gains have remained low and the unemployment rate has been little changed in recent months, which fits a cooling job market rather than a sudden collapse. 1 That gives the Federal Reserve room to stay patient while it watches whether softer hiring eventually leads to broader labor-market weakness.
The Federal Reserve’s new projections show why policymakers stayed patient in March. The median Fed member’s 2026 forecast for real GDP growth rose to 2.4% from 2.3% in December, while their median unemployment-rate forecast stayed at 4.4%. At the same time, their median 2026 forecasts for headline Personal Consumption Expenditure (PCE) inflation and core PCE inflation rose to 2.7%, each from 2.4%, and 2.5%, respectively. 6
In plain language, the Fed now expects slightly stronger growth and slightly hotter inflation than it did a few months ago. Even so, their median projected federal funds rate for the end of 2026 remained 3.4%, which still points to one quarter-point cut this year, and their 2027 median remained 3.1%, which points to another quarter-point cut next year. 6 That means the Fed did not remove the possibility of lower interest rates, but it clearly wants more confidence that inflation is moving down in a lasting way.
Market pricing tells a similar story, but with a wider range of outcomes. Current interest rate pricing for the December 9, 2026, meeting includes meaningful odds of no cuts as well as multiple cuts, which shows that investors still see lower interest rates as possible but are less certain about the exact path. 7“Markets still lean toward lower rates later this year, but inflation and oil prices matter more now for the timing,” says Tom Hainlin, national investment strategist with U.S. Bank Asset Management Group.
That leaves the Fed’s basic message intact. They still see room for some easing over time, but the path now depends more heavily on inflation, energy prices, and labor market data. For investors, the practical takeaway is simple: Rate cuts are still possible in 2026, but they no longer look automatic.
Rate decisions are only part of the policy picture. The Federal Reserve said it will continue purchasing Treasury bills, and if needed other Treasury securities with remaining maturities of three years or less, to maintain an ample level of reserves. It also said it will roll over Treasury holdings at auction and reinvest principal payments from agency securities into Treasury bills.
The balance sheet remains an important support for short-term market stability. The Fed’s bond holdings stood near $6.6 trillion in March, down from a peak of about $8.5 trillion in 2022, 8 and Treasury-bill purchases are meant to keep bank reserves ample and short-term rates near target. In practical terms, the Federal Reserve is holding rates steady while also trying to keep short-term funding markets functioning smoothly.
For investors, this remains an environment that rewards discipline more than prediction. Higher energy costs could lift inflation and slow activity, but consumer spending and corporate earnings have remained resilient, and the broader growth backdrop has not disappeared. As Tom Hainlin says, “Investors do not need to predict every rate move to make progress. They need a portfolio built for more than one outcome.”
Diversification matters more when inflation, rates, and geopolitics are all moving at once. A mix of assets such as globally diversified stocks, global infrastructure, and structured credit can help broaden sources of return and resilience when traditional stock and bond holdings face the same macro pressure. A diversified plan can help investors stay anchored when short-term headlines move faster than long-term fundamentals.
Consult your financial professional and review portfolio positioning to ensure your investments align with current market conditions and future expectations.
A nation’s central bank, which in the United States, is the Federal Reserve, typically controls monetary policy. The Fed’s management of monetary policy can have a significant impact on the shape of the nation’s economy. Congress’ mandate for the Fed is to maintain price stability (manage inflation); promote maximum sustainable employment (low unemployment); and provide for moderate, long-term interest rates. Fed monetary policy influences the cost of many forms of consumer debt such as mortgages, credit cards and automobile loans.
The Fed is the nation’s central bank, and perhaps the most influential financial institution in the world. The central governing board of the Federal Reserve reports to Congress, while the President appoints the chair of the Federal Reserve. There are also 12 regional federal reserve banks that are set up like private corporations.
The Federal Reserve’s Federal Open Market Committee sets a target interest rate policy for the federal funds rate. This is the rate at which commercial banks borrow and lend excess reserves to other banks on an overnight basis. The Fed raises or lowers the rate to impact underlying economic conditions. For example, in 2022, as inflation surged, the FOMC began raising interest rates to make borrowing more expensive and slow economic activity. The Fed designed that strategy to ease pricing pressures and reduce the inflation rate. In periods when the economy is slow or in a recession, the Fed tends to lower rates to try to stimulate economic activity and help the economy expand again.
The Federal Reserve kept its main policy rate unchanged at 3.50% to 3.75%. In its statement, the Fed said economic activity has been expanding at a solid pace, job gains have remained low, and inflation remains somewhat elevated. The FOMC also said uncertainty remains elevated and specifically noted that developments in the Middle East create questions for the U.S. economy.
Inflation is much lower than it was in 2022, but it is still above the Fed’s 2% goal. The February producer-price report showed firmer pressure from energy and other business costs, and the Beige Book said many firms are still seeing higher costs for utilities, energy, metals, insurance, and tariff-related inputs. That combination can slow further progress even when the longer-term trend still looks better than it did a few years ago.
The Fed’s median projection still points to one quarter-point cut in 2026, even after officials raised their inflation forecasts. Market pricing also still centers on one cut by year-end, though investors are assigning meaningful odds to both no cuts and multiple cuts. In practical terms, that means lower rates are still possible this year, but the path depends more heavily now on what happens to inflation, energy prices, and the labor market.
The Federal Reserve held rates steady as expected at its March policy meeting, citing inflation uncertainty and energy prices, while officials’ projections continue to point to one rate cut in 2026.
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