US Fed keeps rates unchanged for second straight meeting at 3.5%–3.75%; signals one rate cut this year: 5 key takeaways

The US Federal Reserve announced its second monetary policy decision for 2026 after a two-day Federal Open Market Committee (FOMC) meeting, keeping its benchmark interest rate steady for the second consecutive time on Wednesday, March 18.

The Federal Open Market Committee voted 11-1 to hold the benchmark federal funds rate in a range of 3.5% to 3.75%. Governor Stephen Miran dissented, calling for a quarter-point reduction.

The decision was widely expected amid uncertain outlook driven by ongoing tensions in the Middle East, which have pushed energy prices to multi-year highs, prompting the US Federal Reserve to raise its preferred inflation gauge (PCE) to 2.7% by the end of 2026—up from the previous forecast of 2.4%.

Prior to the Middle East war, the inflation had remained well above the Fed's target at 2.4%. In a statement, the central bank said that the “implications of developments in the Middle East for the US economy are uncertain.”

Policymakers expect the US-Israel conflict with Iran to push inflation higher this year, but anticipate price pressures to ease gradually, with inflation projected to moderate to around 2.1% by 2027.

The Fed officials had reduced short-term interest rates three consecutive times, before pausing them in January.

The US Federal Reserve operates under a dual mandate of keeping inflation near its long-term 2% target while ensuring maximum employment. However, rising energy prices driven by the Iran conflict have increased inflationary pressures, prompting the central bank to adopt a wait-and-watch approach before making any immediate policy moves.

1. US Fed holds key interest rates steady for second time

The US Federal Reserve maintains the federal funds rate in a target range of 3.5%–3.75%, leaving it unchanged for the second time to balance economic growth with inflation control.

Policymakers noted that economic activity has been expanding at a solid pace, job gains have remained low while inflation remains somewhat elevated.

In January, policymakers signaled growing confidence the unemployment rate was stabilizing. Soon after, several officials sounded intent on holding rates for an extended period to help nudge inflation lower.

2. US Fed projects one rate cut in 2026

Although the US Federal Reserve officials has held borrowing rates unchanged for the second time and inflationary pressures have risen due to the Middle East conflict, they still expect one quarter-point rate cut in 2026 and one in 2027. No policymakers indicated a preference to raise rates this year.

Before the war, a rate cut was expected as early as the summer, with another possible later in the year.

3. US Fed revises inflation, GDP forecasts for 2026

Policymakers have raised their inflation outlook for 2026 to 2.7% from 2.4%. Notably, they expect the core measure—which excludes volatile food and energy categories—to also rise to 2.7%. Central banks typically look through the inflationary effects of short-term price shocks, but it remains unclear how long the war will last.

US Federal Reserve Chair Jerome Powell said he expects higher energy prices due to the war in the Middle East to boost inflation in the near term, adding, however, that the broader economic implications remain uncertain.

"The implications of events in the Middle East for the US economy are uncertain," Powell said at a press briefing after the central bank kept its benchmark interest rates unchanged.

"In the near term, higher energy prices will push up overall inflation, but it is too soon to determine the scope and duration of the potential effects on the economy," he added.

Meanwhile, policymakers slightly upgraded their outlook for growth in 2026 to 2.4%, from the 2.3% they forecast in December. Their unemployment forecast remained unchanged at 4.4% for the end of 2026.

4. US stock market crashes after Fed decision

US stocks sold off following the Federal Reserve’s decision to keep rates unchanged for the second time, while also projecting higher inflation amid the Middle East crisis.

All three key indices traded in the red, with the Dow Jones Industrial Average falling 1.3%, while the S&P 500 and Nasdaq each declined by 1%. Meanwhile, the US dollar rebounded above the 100 mark.

5. Fed Chair signals continuity, dismisses exit speculation

US Federal Reserve Chair Jerome Powell said Wednesday that he did not plan to leave the central bank's board until a Justice Department probe linked to renovation costs is completed, AFP reported.

"I have no intention of leaving the board until the investigation is well and truly over, with transparency and finality," Powell told a press briefing.

He added that he had not decided whether to continue serving as a Fed governor after his term at the helm is over in May.

(With inputs from AFP)

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