The Federal Reserve wrapped up its March meeting on Wednesday with a vote of 11 to 1 to keep the benchmark federal funds rate in a range between 3.5% and 3.75%, marking the second consecutive meeting without a change. While the outcome was widely anticipated, it was the tone out of Chair Jerome Powell’s press conference that rattled investors and sent stocks sharply lower.
Powell acknowledged a widening gap between expectations and reality when it comes to bringing prices down. “The forecast is that we will be making progress on inflation, not as much as we had hoped, but some progress on inflation,” he told reporters, a phrase that landed on traders like a cold bucket of water after months of cautious optimism.
The war in Iran loomed over the entire discussion. Rising oil prices, driven by the near-shutdown of tanker traffic through the Strait of Hormuz, have complicated what was already a difficult inflation picture for the central bank. Powell said the implications of Middle East developments for the U.S. economy are “uncertain,” adding it was “too soon to know” how lasting the damage would be.
Markets moved decisively on the cautious language. The Dow fell more than 768 points by Wednesday’s close, hitting its lowest level since November and sinking below its 200-day moving average for the first time this year. The S&P 500 dropped 1.36%, while the Nasdaq lost 1.46% as traders repriced the probability of future cuts sharply lower.
Updated economic projections showed Fed officials now see inflation reaching 2.7% by year-end, higher than the December forecast, though the central bank still pencils in one rate cut in 2026 and another in 2027. That single cut is conditional, Powell made clear. “If we don’t see that progress on inflation, then you won’t see the rate cut,” he said.
The dot plot revealed a committee divided beneath the surface. Seven officials see rates staying put through all of 2026, one more than in December. While the median view still calls for a cut, the range of outlooks has widened considerably since the Iran conflict began three weeks ago.
Powell also addressed the swirling political tension around his role. President Trump has been openly critical of the Fed’s reluctance to ease, and his Justice Department has issued subpoenas related to a building renovation at the central bank, which a judge subsequently tossed. Powell said he has “no intention of leaving the board until the investigation is well and truly over, with transparency and finality.”
The chair is approaching what may be his final months as chair. His term expires in May, and Trump has already nominated former Fed Governor Kevin Warsh as successor. Should Warsh not be confirmed in time, Powell said he would serve in a pro-tem capacity to prevent a leadership vacuum.
For Wall Street, the session crystallized a frustrating reality: even a hawkish hold, with its attendant clarity, does little to ease the twin pressures of sticky inflation and geopolitical uncertainty. As Barclays’ head of U.S. equity strategy Venu Krishna told CNBC after the close, “The biggest uncertainty or unknown is, how long is this crisis going to last? Should it linger for much longer, then the related impact on inflation and potentially on growth is what will break the market.”
The next FOMC meeting is scheduled for late April, which also happens to be Powell’s last scheduled appearance as chair. Between now and then, every piece of inflation data will be read through the lens of the Iran war’s energy shock, making the Fed’s next few weeks as complex as any in recent memory.