Powell Holds Rates Steady, Signals No Cuts Until Inflation Progress: Full Fed Decision Breakdown
FOMC Decision: 11-1 Hold, Only One Dissenter
On March 18, 2026, the Federal Open Market Committee voted 11-1 to maintain the federal funds rate, with only Governor Milan dissenting in favor of a 25 basis point cut.
Key Points from Powell's Press Conference
1. No Cuts Without Progress
Powell's language was unambiguously hawkish:
"If we don't see progress, we won't cut."
He acknowledged that a series of shocks β tariffs, energy prices, and geopolitical uncertainty β have interrupted the disinflation progress the Fed had achieved.
2. The Economy Is "Expanding at a Solid Pace"
The Fed's Summary of Economic Projections (SEP) now forecasts:
| Metric | 2026 | 2027 |
|---|---|---|
| GDP Growth | 2.4% | 2.3% |
| Unemployment | 4.4% | Slightly lower |
| Core PCE Inflation | 2.7% | 2.2% |
| Year-End Fed Funds Rate | 3.4% | 3.1% |
Both GDP and inflation projections were revised upward from December's estimates.
3. The Tariff + Energy "Double Shock"
Powell highlighted a critical dynamic:
"A series of shocks have interrupted our progress. The most recent came from tariffs. Future inflation will also be affected to some degree."
Combined with Middle East energy disruptions pushing Brent crude past $110, tariffs and oil are creating a dual inflationary pressure that constrains the Fed's ability to ease policy.
4. AI's Paradoxical Impact on Rates
In a notable observation, the Fed acknowledged that AI has not yet meaningfully boosted productivity at the macro level, and in the short term may actually push the neutral rate higher β implying that AI investment spending could be inflationary before it becomes productivity-enhancing.
5. Labor Market: Stable but Fragile
Powell acknowledged that job growth has slowed, partly reflecting declining labor supply (reduced immigration, lower participation). He noted that the labor market "balance" itself carries fragility, and that energy shocks could create a negative cascade through consumption, business costs, and supply chains.
6. Rate Hike Possibility Discussed
When asked about the possibility of rate hikes, Powell confirmed:
"The possibility of a rate hike as the next move has indeed been raised, though most officials do not consider this the base case."
This marks a significant shift from a market that had priced in ~62 bps of cuts before the Middle East conflict.
7. Powell Confirms He Won't Leave
Addressing the ongoing investigation, Powell confirmed he will not step down during the investigation period. If a successor has not been confirmed by the end of his term, he will continue to serve as interim chair to preserve Fed independence.
Q&A Highlights
On "looking through" energy inflation:
"Before we can even confirm progress, the question of 'looking through' energy doesn't really arise. When the time comes, we won't make that decision lightly β we'll handle it carefully against the backdrop of inflation being above target for roughly five years."
On the SEP shift:
"There are 19 committee members, so there are 19 different views and 19 independent projections. The median hasn't changed, but there have been meaningful adjustments β notably toward fewer rate cuts."
Market Reaction
Traders have now priced out all 2026 rate cuts entirely, reducing expected cuts from 62 bps (pre-conflict) to just 16 bps β less than one full 25 bps cut. This represents a 75% reduction in easing expectations.
The 2-year Treasury yield rose 10 bps to 3.775%, while the U.S. dollar strengthened 0.76% back above the 100 level.