As was widely expected, the Federal Reserve’s Open Market Committee (FOMC) held the Fed Funds Rate steady last week at a target of between 3.5% and 3.75%. Although conceding that “economic activity has been expanding at a solid pace,” the FOMC also notes that “inflation remains somewhat elevated.”
It’s not particularly remarkable language. In fact, these exact words appeared — verbatim — with the statement released following January’s assessment.
Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »
There are a couple of red flags, however, that aren’t necessarily showing up within the Fed’s most-watched actions, like adjustments to the Fed Funds Rate.
One of these newly waving red flags is the fact that, while still contained, the Federal Reserve’s Open Market Committee raised its personal consumption expenditures (PCE) inflation outlook for 2026 from a prior estimate of 2.4% to its current estimate of 2.7%. On a core basis (which excludes food and energy costs), the 2026 personal spending outlook was raised from December’s forecast of 2.5% to 2.7% now.
In this vein, it’s also worth noting that earlier on Wednesday, the Bureau of Labor Statistics reported producers’ overall input costs jumped 3.4% (annualized) in February, reaching its highest level since February of last year. Core producer inflation (which also excludes food and fuel) edged up to an annualized rate of 3.5%. Although both numbers are still within manageable tolerances, each also came in well above expectations.
The Fed still ultimately expects to ratchet interest rates down once this year, by one-quarter of one percent. The margins in which this can comfortably be done, however, have just shrunken.
Then there’s the post-announcement press conference where Fed Chairman Jerome Powell answered questions about the Federal Reserve’s decision. Although none of this commentary is official policy, unofficially, his comment is telling to say the least: “The rate forecast is conditional on the performance of the economy, so if we don’t see that progress, then you won’t see the rate cut.”
And yes, the unpredictable duration and impact of the conflict in the Middle East are key contributors to the underlying uncertainty of the matter.
Don’t misunderstand. Much of Wednesday’s sweeping marketwide sell-off was in response to the FOMC’s decision on interest rates and the wording of its commentary. Investors’ knee-jerk reaction was reasonable, given the news and the corresponding explanation.
