The Fed May Not Move This Week, but Markets Still Will
The Federal Reserve meets March 17–18, and the overwhelming expectation is that rates will remain unchanged. Even so, this is still an important meeting for investors. Some of the most meaningful Fed meetings are the ones where policy stays put, because markets are often reacting less to the current decision and more to what policymakers signal about the path ahead.
The backdrop has become more complicated in recent weeks. Inflation had been making progress, but the trend was never perfectly linear, and now energy has re-entered the picture in a meaningful way. Oil’s recent spike to above $100 a barrel has given fresh ammunition to inflation hawks, who will argue that the Fed cannot afford to sound too comfortable about the path back to 2%. Even if policymakers ultimately look through some of that move as a supply shock tied to the Iran conflict, the optics matter. When oil jumps that quickly, it tends to influence inflation expectations long before it shows up cleanly in the data.
Even so, my own view remains that while no change is the right expectation for this meeting, the odds still favor a rate cut later this year. Part of that view rests on the idea that the economy continues to cool gradually, even if not dramatically. Part of it also reflects the likely leadership transition at the Fed. Jerome Powell’s current term as Chair ends in May, and markets are already beginning to think about what that transition could mean for the policy tone in the second half of the year.
The leading successor is Kevin Warsh, though the process has reportedly moved more slowly than expected. Warsh is not a new figure to markets. He served on the Federal Reserve Board from 2006 to 2011, so he was in the room during the financial crisis, and he has long been seen as serious, market-aware, and focused on institutional credibility. His public commentary over the years has generally reflected some skepticism toward an overly activist Fed and a preference for monetary discipline and clarity. At the same time, investors also recognize that a new chair inherits the economy that exists, not the one he might prefer. If growth softens and labor conditions weaken later this year, a leadership change could reinforce the case for a somewhat more flexible policy tone.
There is also a political overlay here that markets are watching closely. One market view is that President Trump’s preference for lower rates heading into the midterms may ultimately outweigh any appetite for pressing the Iran conflict into a more extended confrontation. That does not mean investors are dismissing geopolitical risk. Rather, it reflects a belief that the White House would prefer a contained conflict over a prolonged, boots-on-the-ground war that drives oil materially higher, keeps inflation elevated, and makes it harder for the Fed to ease. My own sense is that the administration has little desire to get pulled into that kind of long-duration conflict.
That is one reason this meeting matters even without an immediate move. Investors will be listening for how the current Fed describes the inflation outlook, how much weight it places on recent energy prices, and whether officials still believe the economy is moving toward a backdrop that would justify lower rates later on. Updated projections always matter, but they matter even more when policy is at a potential transition point.
It is also worth remembering that markets do not need a rate cut to move. Stocks, bonds, and the dollar can all react to subtle changes in language around inflation, growth, unemployment, and risk. A Fed that sounds patient but still open to easing later this year would likely be read differently than a Fed that sounds increasingly concerned that inflation is becoming sticky again. The distinction may seem small on paper, but markets often respond quickly to those shifts in tone.
For long-term investors, the broader lesson is straightforward. This week is less about whether the Fed stands still for one more meeting and more about whether the direction of travel remains intact. My expectation is that it does. I do not expect a move this week, but I still believe the balance of probabilities favors at least one cut later this year. If that view proves right, this meeting may end up being remembered not for what the Fed did in March, but for what it signaled about the second half of 2026.
If you have questions about what the Fed, inflation, or shifting rate expectations could mean for your portfolio, feel free to email me at Jeremiah.Bauman@LPL.com or call me at 661-302-4531. I’m always happy to talk through the headlines and help put them into proper long-term context.
In the meantime, try not to overreact to every Fed headline. The market will do enough of that for all of us.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.