In a much-anticipated move, the FOMC voted with 11:1 majority to keep the federal fund rate unchanged at 3.50-3.75%. Uncertainty around the economic outlook remains elevated, with the ongoing situation in the Middle East adding a significant unknown to the prospects for the US economy. While inflation has stabilized around 2.4% over the past two months, rising fuel prices, driven by ongoing Middle East tensions, pose an upside risk in the near term.

Growth Parameters Remain Solid, Job Gains Remain Low Partially Due To Lower Immigration

Overall economic growth remains resilient supported by strong consumer spending and business investment, though housing sector continues to be under stress.

In the recent months, unemployment rate has been broadly stable, with marginal uptick in recent 12 month average to 4.3% from 4.1%. Additionally, new payrolls continue to be low. While part of slower job creation could be explained by decline in the labour force amid lower immigration and labour force participation, the demand for labour has also softened.

Inflation Expectations Rise Amid Higher Oil Prices

US inflation remains above the 2% target, driven by tariff-led goods inflation, even as services disinflation persists. Near-term expectations have risen, reflecting the impact of higher oil prices.

Growth & Inflation Seen Slightly Higher in 2026

Fed Still Signals One Rate Cut Each In 2026 & 2027. For 2026, growth is expected to be around 2.4%, marginally higher than 2.3% estimated in December 2025 policy, although unemployment rate is maintained at 4.4% for the year. On the other hand, inflation expectation has risen to 2.7% from 2.4% for 2026.

Although, the fed maintained its expectation for one rate cut in 2026, the evolving situation in the middle east remains highly uncertain with sharp swings witnessed in the oil prices. If oil prices remain consistently elevated, it could potentially delay rate cut in the near-term.

Markets Under Pressure As Oil Prices Surge

The S&P 500 declined 1.4% from the previous close, as Brent crude surged to USD 110/bbl. Short-term yields moved higher in response to elevated wholesale inflation, adding uncertainty to the rate trajectory. Meanwhile, the DXY strengthened, closing above the 100 level for the second consecutive session.

Ionic Wealth View

Fed has decided to be in wait and watch mode, given the war related uncertainty. Fed’s inflation expectations are now dependent on fading tariff inflation and clarity around the Iran war and consequent energy prices. Fed has rightly chosen to be on a likely extended pause given the uncertainty. The “mildly restrictive” stance seems to be appropriate for now. The dot plot showed no change with one cut each getting signaled in 2026 and 2027. The pause restricts weaker dollar and therefore hurts the EM trade which will see perils of both higher energy prices and weaker currency. RBI is also likely to face similar dilemma and is now unlikely to cut in April.

This view is for educational and informational purposes only and should not be construed as an investment advice.