US Federal Reserve Interest Rate Outlook

The Federal Open Market Committee (FOMC) is scheduled to meet on March 17-18 amidst ongoing geopolitical tensions in the Middle East. Market expectations for interest rate cuts have shifted, with a growing likelihood that rates will remain unchanged for the remainder of 2026.

Macro-economic prints suggest a weaker-than-expected US economic growth, with Q4 GDP growth at 0.7% (vs. a forecasted 1.4%). On the inflation front, the US consumer price index increased 0.3% in February, while the PCE price index rose 0.3% in January, with a year-on-year increase of 2.8%.

Key Takeaways:

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• The FOMC is expected to keep interest rates unchanged in the upcoming meeting, citing the ongoing geopolitical situation and its potential impact on inflation.
• The US-Iran war and its impact on crude oil prices pose a significant risk to the economic growth-inflation trajectory, potentially leading to a longer pause on interest rates.
• The appointment of a new Federal Reserve Chairman after Jerome Powell's term ends on May 15 may influence the interest rate trajectory, with some economists predicting a possible rate hike later in the year.
• Economists predict a 50 bps rate cut by the FOMC members in 2026 to support the US economy amid signs of rising unemployment.

Interest Rate Projections:

• Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, expects the FOMC to keep rates unchanged, citing the ongoing geopolitical situation and its impact on inflation.
• Madhavi Arora, Chief Economist at Emkay Global Financial Services, predicts that rate cut odds for the year are gone, with a possibility of stagflation fears lingering.
• Sujan Hajra, Chief Economist and Executive Director at Anand Rathi Group, expects interest rates to remain at a standstill for too long, citing the temporary nature of the oil shock.
• Debopam Chaudhari, Chief Economist at Piramal Finance, believes a June rate cut remains very much on the table to support the US economy amid signs of rising unemployment.