US Fed meeting: Rates unchanged; how the decision may impact the Indian stock market

The US Federal Open Market Committee (FOMC) on 18 March kept benchmark interest rates unchanged for the second consecutive time, largely in line with market expectations amid rising inflation risks linked to the ongoing conflict in the Middle East. The target range for the federal funds rate remains at 3.5%–3.75%.

The US Federal Reserve has now maintained the status quo on rates for two straight policy decisions. In its January meeting as well, the central bank had held rates steady after cutting them in three consecutive meetings in September, October and December 2025.

Notably, policymakers now project just one 25-basis-point rate cut in 2026 and another in 2027. No member indicated a preference for a rate hike this year.

However, some experts believe the Fed may remain on an extended pause.

"The absence of a bias on either side seems to be the message, and it is likely that the Fed will be on an extended pause until there is more clarity around the effects of the Iran crisis (and fading tariff inflation)," said Madhavi Arora, Chief Economist for Emkay Global Financial Services.

Just a month ago, before the Middle East conflict escalated, markets were pricing in at least two 25 basis point rate cuts in 2026, with easing expected to begin in the second half of the year.

The FOMC, which voted 11–1 in favour of holding rates, said the impact of the ongoing conflict on the US economy, amid the war in the Middle East, remains uncertain at this stage.

The central bank expects inflation to rise this year, revising its PCE inflation forecast slightly higher to 2.7% by end-2026. However, inflation is projected to ease gradually to around 2.1% by 2027.

The growth outlook was marginally upgraded to 2.4% from 2.3% projected in December, while the unemployment forecast remains unchanged at 4.4% for end-2026.

How will the US Fed policy decision impact the Indian stock market?

The FOMC decision was largely on expected lines. However, Fed Chair Jerome Powell struck a cautious tone, citing the sharp rise in crude oil prices amid the US-Iran war, which could have a limited impact on markets.

Following the announcement, the US dollar index rose 0.70% to 100.31, while the benchmark 10-year Treasury yield climbed about 0.30% to 4.27%. The S&P 500 and Nasdaq fell 1.36% and 1.46%, respectively.

However, market reaction is being driven less by the Fed’s stance and more by escalation in the US-Israeli war against Iran and surging crude oil prices.

Brent crude futures jumped over 8% to nearly $112 per barrel after a strike on one of Iran’s major gas facilities. According to the Associated Press, Iranian President Masoud Pezeshkian warned of “uncontrollable consequences” that “could engulf the entire world”.

Media reports suggest Iran has warned people to evacuate areas near key oil and gas facilities in Saudi Arabia, the UAE and Qatar, signalling a potential escalation.

Experts say markets are currently being driven more by fundamentals than policy.

"The Fed didn’t move today—but it didn’t need to. This is a central bank that’s comfortable waiting, watching, and staying flexible. One projected cut tells you everything: the Fed is not in a rush, and neither should investors be. This is no longer a policy-driven market—it’s a fundamentals-driven one. The next phase belongs to companies that can grow without relying on lower rates," Gina Bolvin, President of Bolvin Wealth Management Group, noted.

Analysts believe the ongoing conflict remains the biggest concern, while a slightly hawkish Fed is unlikely to significantly impact the Indian stock market.

Gift Nifty plunged more than 500 points overnight, signalling a gap-down opening for Indian markets. Experts expect investor focus to remain on crude oil prices and geopolitical developments rather than the Fed’s policy outcome.

“The Fed policy outcome is not a major event for the Indian stock market at this juncture. The market is more concerned about oil prices and the war,” said G Chokkalingam, founder and head of research at Equinomics Research.

VK Vijayakumar, chief investment strategist at Geojit Investments, said rupee depreciation and the potential impact of elevated crude prices on growth and corporate earnings could keep foreign institutional investors on the selling side in the near term.

“The near-term market trend will depend on how the war evolves and its impact on crude prices. The Fed decision and stance are unlikely to significantly influence markets,” he said.

However, Harshal Dasani, business head at INVasset PMS, cautioned that for Indian equities, the risk lies less in the status quo on rates and more in the Fed’s messaging.

“A firmer Fed tone may push US bond yields and the dollar higher, which could put pressure on foreign portfolio flows into emerging markets. That would be negative for Indian equities, especially rate-sensitive sectors such as financials, real estate and consumer discretionary,” Dasani said.

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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.