The Fed left interest rates unchanged at its March 18 meeting, as expected, amid the backdrop of the Iran war, which is contributing to a shaky economic outlook.
Takeaway: The meeting will nudge mortgage rates ever so slightly higher. But Fed Chair Jerome Powell expressed more concern over high inflation than slow economic growth.
Mortgage rates will drift slightly higher as the Fed holds rates steady and continues to project one rate cut for 2026. It’s noteworthy that they communicated greater concern about inflation than economic growth or unemployment.
- The committee voted to keep rates steady, with only one dissent from Governor Stephen Miran, who preferred a 25 bps cut. This outcome was largely expected, though there was the possibility of more dissents.
- The new set of projections continues to show one rate cut in 2026 at the median, but there was an overall shift of the dots toward fewer rate cuts, with fewer committee members projecting two or more cuts. In addition, the forecasted “long term” rate edged up from 3.0% to 3.125%.
- The economic forecast in the projections interestingly showed expectations of higher inflation, including core inflation (which excludes food and energy prices) in 2026, but was unchanged for the unemployment rate and showed higher, not lower, economic growth this year. This was despite broad expectations that the Iran war should be a stagflationary development, meaning higher inflation and lower economic growth.
- Powell also emphasized the dramatic increase in uncertainty, saying that if there was ever a meeting to not issue projections, it was this one.
On the transition to the new Fed Chair: Powell committed to staying on the Board of Governors until the criminal investigation has ended.
- Staying on the Board of Governors after his term as Chair ends is the one card Powell has to play against political interference with the Fed’s independence. Today’s announcement could help to hasten an end to the criminal investigation.
