CITIC SEC released a research report stating that the Federal Reserve maintained its policy rate unchanged during the March 2026 FOMC meeting, aligning with market expectations. The latest dot plot indicates a median target interest rate of 3.4% for this year, consistent with the December 2025 projection. The Fed also raised its inflation forecast for the year, slightly increased its economic growth projection, and maintained its unemployment rate forecast. As anticipated, Chair Powell refrained from commenting on the Iran situation and oil prices. Notably, his confidence in tariff-driven inflation moderation has weakened further compared to January. The firm expects no rate cut in April. Following the anticipated appointment of Wash as Chair, the baseline scenario foresees one 25 basis point rate cut in the second half of the year.
Regarding FOMC personnel matters, if the U.S. Department of Justice drops its investigation into Powell, Wash is highly likely to be confirmed by the Senate. Powell is also expected to resign from his Board of Governors position upon the conclusion of his term as Chair. Internal consensus within the FOMC is not as strong as in the past. Moving forward, whether Powell continues to chair meetings temporarily or Wash successfully assumes the role, close attention must be paid to the statements of the 12 current voting members. The path of Fed monetary policy will depend more on the balance of votes among members, with the Chair's individual remarks having diminished market guidance influence compared to previous periods.
Key points from the March 2026 FOMC statement include: 1) Interest Rates: The Committee decided to maintain the target range for the federal funds rate at 3.5-3.75%, matching expectations. The decision was not unanimous, with one member, Milan, voting for a 25 bps cut. 2) Balance Sheet: The Fed continues to maintain balance sheet stability via Reserve Management Purchases (RMP). Maturing Treasury securities are fully rolled over, agency assets are allowed to run off and reinvested in T-bills, and T-bills are purchased as needed to supplement reserves and ensure they remain at an ample level. The New York Fed's website indicates planned reinvestment purchases of approximately $13.8 billion and RMPs of about $40 billion between March 13 and April 13. 3) Economic Outlook: Recent indicators suggest economic activity has been expanding at a steady pace. Job gains have slowed but remain moderate, and the unemployment rate has changed little in recent months. Inflation remains somewhat elevated. The Committee seeks to achieve maximum employment and maintain 2% inflation over the longer run. The economic outlook remains highly uncertain. The implications of Middle East developments for the U.S. economy are uncertain. The Committee remains highly attentive to inflation risks.
Changes from the January statement include: 1) Employment Language: The phrase "the unemployment rate has shown some signs of stabilization" was replaced with "the unemployment rate has been little changed in recent months." 2) Geopolitical Addition: A new sentence was added: "The implications of developments in the Middle East for the U.S. economy are uncertain."
The dot plot projects a median year-end rate of 3.4%, unchanged from December 2025, implying one more 25 bps cut this year. The distribution of votes showed 7 members favoring no cuts, 7 favoring one 25 bps cut, 2 projecting a rate of 3-3.25%, 2 projecting 2.75-3%, and 1 projecting 2.5-2.75%, indicating increased concentration of views compared to the previous plot.
Economic projections were revised upward relative to the December 2025 Summary of Economic Projections (SEP). The 2026 GDP growth forecast was raised slightly from 2.3% to 2.4%. The unemployment rate forecast was unchanged at 4.4%. The PCE inflation forecast was increased from 2.4% to 2.7%, and core PCE inflation was raised from 2.5% to 2.7%. The longer-run federal funds rate projection was lifted from 3.0% to 3.1%.
Powell's commentary highlighted several points. On the Middle East, he adopted a "wait and see" approach, noting uncertainty about the scale and duration of any impact and referencing the traditional view of "looking through" energy shocks. He distinguished the current situation from 1970s stagflation. On tariff inflation, Powell maintained the view that the passthrough of tariff effects would be largely complete by mid-year, but acknowledged that the expected improvement in inflation has been less than previously hoped. He emphasized that rate cuts are conditional on seeing progress on inflation. This represents a further weakening of confidence compared to January. The retention of one projected cut in the dot plot appears contingent on clearer signs of inflation moderation.
Powell also stated that most members do not see a rate hike as the baseline scenario, despite some participants previously suggesting "two-sided" rate risk descriptions. Given uncertainties surrounding "Iran situation-oil price dynamics-inflation expectations," the Fed requires patience. Although the February jobs report was weak, it was influenced by factors like strikes, weather, and statistical adjustments, partially offsetting January's strength. Consequently, CITIC SEC expects no rate cut in April, with one 25 bps cut in the second half of the year under the baseline scenario following Wash's anticipated appointment.
On FOMC leadership, the appointment of Wash by the Trump administration faces Senate hurdles. Republican Senator Thom Tillis has stated he will block any Fed nominations until the DOJ's investigation into Powell concludes, reducing the likelihood of Wash's confirmation before Powell's term expires on May 15. Powell indicated that if a successor is not confirmed, he would serve as chair pro tempore. Reports suggest Powell's lawyers have discussed the possibility of him remaining on the Board after his chair term ends. Powell stated he has no plans to leave the Fed before the investigation concludes. Conversely, if the DOJ investigation is dropped, Wash's confirmation becomes highly probable, and Powell would likely resign from the Board entirely.
Internal FOMC consensus has weakened, as Powell has frequently noted that "all 19 participants have their own forecasts." Therefore, regardless of who chairs meetings, monitoring the views of the 12 voting members is crucial, as policy direction will hinge more on the balance of votes than on the Chair's individual commentary.
Risk factors include a U.S. labor market weakening beyond expectations, unexpected developments in the Iran situation, unexpected policies from the Trump administration, and the Fed adopting a more hawkish stance than anticipated.