【Market Flash】Federal Reserve Holds Steady, M-Squared Provides Oil Price, Inflation, and Rate Trajectory!

What we want you to know:
In March, the Federal Reserve FOMC maintained the benchmark interest rate in the 3.50% to 3.75% range, and the dot plot also kept the path of a 1 percentage point cut in 2026. Amid the uncertain Middle East situation, committee members provided slightly upward revisions to their SEP forecasts for the economy, inflation, and productivity. Financial analysts at M Square also provided scenarios for oil prices, inflation expectations, and interest rate developments!

Key points of this article:

2. At this meeting, the committee voted 11:1 to keep the interest rate in the 3.50% to 3.75% range unchanged. The statement added that the high uncertainty surrounding the Middle East situation poses risks.

3. The dot plot still indicates a path of one rate cut in 2026 and 2027, signaling the Fed’s continued stance toward easing.

4. The SEP slightly raised the 2026 economic growth forecast to 2.4% (from 2.3%), inflation and core inflation to 2.7% (from 2.4%) and 2.7% (from 2.5%), respectively, suggesting committee members view the impact of the US-Iran conflict on inflation as a short-term shock. Additionally, they revised upward the US economic growth estimate, reflecting recent productivity gains.

5. During the press conference, Powell maintained a neutral, cautious attitude, stating that the high uncertainty in the Middle East makes accurate predictions difficult. The Fed will decide in the next six weeks based on evolving developments. When asked about rate hikes, Powell emphasized that although discussions occurred, this is not the baseline scenario for the Fed.

1. The Fed’s March meeting kept rates steady, focusing on uncertainties in the US-Iran conflict!

In this meeting, the Fed’s voting members approved 11:1 to keep the benchmark rate in the 3.50% to 3.75% range. The statement maintained that economic activity remains solid and added that the high uncertainty regarding the Middle East situation poses risks to the US economy. This signals the Fed’s short-term cautious stance pending further developments. Key points from the statement are summarized below:

Economic and inflation outlook: steady economy, watchful on Middle East risks

The economic outlook in the statement saw little change from the previous one, maintaining that activity remains solid. The description of the unemployment rate was changed from “showing signs of stabilization” to “little changed in recent months.” Also, the paragraph on the dual mandate did not reintroduce the concern about increased downside risks to employment, indicating the Fed does not see further weakening in the labor market.

Regarding inflation, the Fed continues to state that it remains somewhat elevated, and added that the high uncertainty from the Middle East could impact the US economy significantly.

Interest rate guidance: stance unchanged on future cuts

The forward guidance on interest rates remains unchanged, retaining language about possible additional cuts since September 2025, and the December 2025 revision that emphasizes “a more cautious assessment of the extent and timing” of future easing. The Fed appears to be ending its cycle of rate cuts but remains oriented toward easing if conditions warrant.

Monetary policy stance: acting in line with future inflation trends

In March, the Fed’s voting members approved 11:1 to keep rates in the 3.50% to 3.75% range. Only Stephen I. Miran, nominated by Trump, supported a 25 basis point cut at this meeting (previously supported 50 basis points in recent meetings). Most members, like Powell during the press conference, prefer to wait and see how the Middle East situation develops before adjusting policy, basing decisions on economic data and maintaining a cautious approach.

2. Dot plot maintains 1 rate cut in 2026 and 2027

The market’s focus was on the Fed’s interest rate path in 2023. The latest March dot plot shows a more concentrated distribution for 2026, with 7 members supporting no cut, 7 supporting a 25 basis point cut, 2 supporting a 50 basis point cut, and 3 supporting cuts greater than 50 basis points. The median remains at a 25 basis point cut, in the 3.25% to 3.50% range, but most members have lowered their expectations for the size of future cuts.

For 2027, the interest rate is expected to stay in the 3.00% to 3.25% range, with a forecast of a 25 basis point cut. The 2028 median rate remains at 3.00% to 3.25%, indicating an end to rate cuts. The long-term median rate was slightly raised to 3.125%, and the dot plot still shows an inverted yield curve, reflecting the committee’s view that the inflation impact from the Middle East is short-term, with room for policy easing as inflation slows.

Overall, the forecast suggests a 1 percentage point cut in both 2026 and 2027, signaling the Fed’s continued easing stance. Two notable points are:

2. One committee member projected a rate hike in 2027, which was a focus during the press conference. Powell said there was discussion of a rate hike but it is not the baseline scenario.

3. The long-term neutral rate was raised again to 3.125%, reflecting the inclusion of productivity growth in the outlook, which could help moderate inflation and support economic growth.

Further details will be discussed during the press conference.

3. The Fed slightly raises economic and inflation forecasts, signaling increased productivity

The SEP (Summary of Economic Projections) was revised upward for 2026 GDP to 2.4% from 2.3%, with the unemployment rate remaining at 4.4%. Inflation forecasts were also slightly increased: inflation and core inflation to 2.7% from 2.4% and 2.6%, respectively. The rate cut of 25 basis points this year, combined with these forecasts, suggests the committee views the war’s inflation impact as short-term, with room for rate cuts before 2026. The upward revision of long-term growth to 2% (from 1.8%) and the neutral rate to 3.1% (from 3%) indicates expectations of rising productivity.

Forecasts for the next three years (2026–2028):

• Slight upward revisions in GDP growth: 2.4% (from 2.3%), 2.3% (from 2.0%), and 2.1% (from 1.9%). The long-term growth estimate is now 2.0% (from 1.8%).
• Unemployment rate forecasts remain roughly unchanged: 4.4%, 4.3%, and 4.2%.
• Slight upward revisions in PCE inflation: 2.7% (from 2.4%), 2.2% (from 2.1%), and 2.0%.
• Slight upward revisions in core PCE inflation: 2.7% (from 2.5%), 2.2% (from 2.1%), and 2.0%.
• The interest rate path remains unchanged, with a gradual decline to around 3.4%–3.1%, but the long-term neutral rate was raised to 3.1% (from 3.0%).

4. The Fed continues monthly Treasury purchases to inject liquidity

Following the October 2025 meeting, when the Fed announced the end of balance sheet runoff and the start of short-term debt purchases in December, the New York Fed has been executing Reserve Management Purchases (RMPs) of short-term Treasuries since December 12, 2025. Details and liquidity impacts are summarized below:

Liquidity impact from March 2026 short-term debt purchases:

According to the NY Fed’s plan, the Fed will begin actively purchasing Treasury securities with maturities of one year or less, and if needed, securities up to three years. The RMPs will be announced on the 9th business day of each month. Before the April tax season, purchases are expected to remain around $40 billion per month to offset the increase in non-reserve liabilities.

The latest Fed balance sheet shows holdings of US Treasuries increased from $4.19 trillion to $4.35 trillion, with an average monthly increase of $43.5 billion from December 2025 to February 2026, helping stabilize the balance sheet and prevent new lows.

Liability structure shows that, despite the TGA (Treasury General Account) remaining high at around $937.6 billion, reserve balances have begun to rise again, recently surpassing $300 billion, indicating that short-term debt purchases are expanding the balance sheet and injecting liquidity. The press conference did not specify whether the $40 billion monthly purchase level will continue after April, so ongoing monitoring is recommended as a key indicator of market liquidity during the Fed’s cautious easing.

Note: The purpose of the Fed’s short-term debt purchases is to maintain ample reserve levels, avoiding excessive short-term interest rate volatility. Controlling the policy rate’s upper and lower bounds is a key aspect of the Fed’s credibility. When committee members perceive risks to policy rate control, they tend to act decisively with monetary policy measures.

5. Powell’s post-meeting press conference highlights

[Content not provided; likely to include Powell’s remarks on policy outlook, economic risks, and market expectations.]

Already a subscriber? If so, please log in here.

Become a subscriber for full M Square services.

• Unlimited macro chart browsing: Key global investment indices and commodity indicators.
• Exclusive reports: 6–8 major event/data analysis briefs monthly.
• Research toolbox: Custom charts and backtesting.
• Professional macro community: User secret indicators and opinion sharing.

Subscribe now.

[Market news highlights and special reports, promotional content, and subscription prompts follow.]