Fed holds rates, signals patience on further easing

The FOMC held the federal funds target range at 3.75-4.00% on March 18 2026, as expected. The dot plot implied two 25 bp cuts through year-end, down from three in December's projection, as tariff-related goods inflation had pushed core PCE back above 3.0% YoY in February. Chair Powell emphasized that the Fed would "maintain restrictive policy until inflation is sustainably approaching 2%."

Markets took the decision in stride. The S&P 500 closed up 0.45% as the modest hawkish shift was widely anticipated. The 10Y Treasury yield rose 4 bps to 4.28%. Real yields moved higher, pressuring gold modestly. The session crystallized the 2026 regime: structurally elevated rates driven by persistent goods inflation from tariffs, offset by service-sector disinflation and labor market resilience.

The Fed's patience contrasted with aggressive easing cycles of the past. March 2025 had seen the Fed cut 50 bps, but subsequent 25 bp cuts in June and September 2025 had taken policy rate to 3.75-4.00%. The pause since December 2025 reflected the complex inflation-labor tradeoff created by tariff policy: goods prices rising from trade restrictions while services prices moderating from labor market loosening.