NEW YORK, March 18 (Reuters) - The Federal Reserve held its policy rate steady on Wednesday, as was widely expected, citing somewhat elevated inflation and giving little indication when it might next cut short-term borrowing costs. Fed officials' economic projections indicated they expect to cut rates once again this year, largely in line with the Wall Street estimate.
MARKET REACTION:
STOCKS: The S&P 500 declined slightly after the policy statement, leaving it down on the day by 0.7%.
BONDS: The yield
on benchmark U.S. 10-year notes was little changed at 4.22%.
FOREX: The dollar index was up 0.2% to 98.83.
COMMENTS:
SAM STOVALL, EQUITY MARKETS STRATEGIST, CFRA, ALLENTOWN, PENNSYLVANIA:
“I think what they’re telling us is that they’re a bit more concerned about oil’s upward pressure on inflation while at the same time telling us that they believe the economy remains stable and solid. The belief seems to be that the inflation situation could end up resolving itself in the near term before having a deleterious effect on the economy: that it will be a speed bump rather than a brick wall.”
DANIEL SILUK, HEAD OF GLOBAL SHORT DURATION & LIQUIDITY, JANUS HENDERSON INVESTORS, NEWPORT BEACH, CALIFORNIA:
“The Fed delivered a fully expected hold, but the tone came through more cautiously balanced than hawkish. The statement explicitly notes that job gains remain low, inflation is 'somewhat elevated,' and uncertainty from Middle East developments clouds the outlook, marking a clearer recognition of two sided risks. While Stephen Miran again dissented in favor of a 25bp cut, the fact that he was the sole dissenter, despite some expectations of broader dissent, suggests the committee is still largely unified behind a steady hand approach. The Fed affirmed patience, acknowledged geopolitical uncertainty and resisted a more hawkish pivot even with firmer inflation projections, likely a relief for markets already tightened by recent volatility.”
MATTHIAS SCHEIBER, HEAD OF THE MULTI-ASSET TEAM, ALLSPRING GLOBAL INVESTMENTS, LONDON:
"While the bigger macroeconomic picture will likely be affected by rising geopolitical risks, it’s too early to know the degree to which this will impact U.S. fundamentals and the central bank’s reaction function. Job market data have weakened, as has the official gross domestic product data for the fourth quarter, but overall economic growth seems to be less affected - for now, at least.
"Inflation numbers have been broadly in line with expectations, but more time is needed to get inflation back to target. With the increased likelihood of more fiscal spending to cushion the consumer from higher energy prices, the Fed is likely to stay data dependent and keep rates on hold. Market consensus has repriced already with only one rate cut expected this year, down from three rate cuts priced in just last month, and materially higher yields are on offer at the front of the yield curve."
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK:
“It’s obviously no surprise. What we're seeing here is a Fed that is very cautious and is saying, ‘look, we don't know what's going to happen, what the effects of the war are going to be, especially when it comes to energy prices.’
“I don’t think we’re looking at any interest rate cuts until maybe the fourth quarter, if we get one and it all depends on what happens with energy prices. Now if energy prices do not come down within a reasonable time and remain even at these levels, it's going to mean higher inflation and you're going to have an economy that's probably growing at less than 1% with higher inflation, which equates to stagflation.”
STEPHEN KOLANO, CHIEF INVESTMENT OFFICER, INTEGRATED PARTNERS, WALTHAM, MASSACHUSETTS:
"Markets largely anticipated no rate action at this meeting, and focus will now shift to the Fed’s commentary. Producer prices came in higher than expected this morning, further contributing to the uncertain inflation outlook; notably, these figures did not yet reflect the impact of the Iran conflict. Additionally, the Bank of Canada also held rates steady in its decision earlier today.
"One potential area to revisit in portfolios is small caps, which had been performing well on expectations of rate cuts and a solid economy. However, with rate cuts now pushed further out and the longer-term impact of higher energy prices still uncertain, we may begin to see a pullback in small caps—particularly in the higher-beta areas of the market that established leadership in the latter part of 2025 and early 2026.”
LINDSAY ROSNER, HEAD OF MULTISECTOR FIXED INCOME INVESTING, GOLDMAN SACHS ASSET MANAGEMENT, NEW YORK:
"The Fed will remain in ‘wait-and-see’ mode for now, pending clarity on developments in the Middle East. Despite higher inflation forecasts the FOMC retains an easing bias, with a narrow majority on the committee expecting cuts to resume this year. We still see room for two ‘normalization’ cuts in 2026, although their timing remains dependent on the length of the conflict."
KARL SCHAMOTTA, CHIEF MARKET STRATEGIST, CORPAY, TORONTO:
"The Federal Reserve left interest rates unchanged and made relatively minor changes in its policy statement, suggesting that officials plan to follow long-standing monetary policy orthodoxy in 'looking through' the energy price shock now rolling across the global economy.
"The consistent tone, paired with a fresh set of projections showing lower growth, weaker employment and higher inflation than in December, marks the clearest signal yet that Chair Jay Powell's Fed sees higher energy prices playing a temporary but demand-destructive role in the US economy.
"With policymakers seemingly intent on resisting pressure to act in either direction, rate expectations are holding firm across the front end of the curve, reinforcing today’s advance in the dollar."
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:
"The real action was in the Summary of Economic Projections. They’re only guessing about what will happen with oil prices, but inflation is projected to run 0.3 percentage points hotter without a material drag on growth. That could be optimistic on their part. It’s similar to how they overestimated the effect of tariffs on inflation and underestimated the growth drag. 2026 could be like the last two years where there’s a shock, they end up being surprised, and they cut in September."
GENNADIY GOLDBERG, HEAD OF US RATES STRATEGY, TD SECURITIES, NEW YORK:
“Yields are moving a little bit lower, I think just on relief that the dots for 2026 and 2027 didn't reflect fewer rate cuts, as some investors were worried that they would. The statement itself just mentions uncertainty in the Middle East and the uncertainty in that pass through to the U.S. economy.
“Otherwise, I think the Fed is effectively staying on hold, just waiting and watching to see how this affects the economy. I think markets are going to be looking for Powell's remarks at 2:30 for any sort of direction, although I doubt Powell wants to pound the table one way or the other just because of the worry that the Middle East conflict can weigh on both growth and push inflation higher at the same time. And that's something that's concerning to the Fed.”
(Reporting by Suzanne McGee, Chuck Mikolajczak, Saqib Ahmed, Karen Brettell, Saeed Azhar, Laura Matthews, Stephen Culp; editing by Colin Barr)
