Why must the Federal Reserve withstand pressure and resolutely refrain from cutting interest rates in March?
2026-03-18 00:48:04
The global financial markets are currently shrouded in a heavy atmosphere of tension. The Strait of Hormuz is effectively blocked, and energy prices in the United States have soared to multi-year highs. The core task facing the Federal Reserve is clear: to strictly control inflation and stabilize prices. Investors must recognize the reality that the Fed's focus at this moment is price stability, not catering to the stock market's demands for interest rate cuts. This article will break down the core logic and explain why this interest rate meeting is the most crucial in recent years.
With inflation worsening, cutting interest rates would be like adding fuel to the fire.
High inflation remains a major concern for the Federal Reserve. This inflationary cycle, once described as "temporary," has now lasted five years, proving its resilience to be far greater than expected. Even with the Fed's most aggressive interest rate hike in decades—a cumulative increase of 525 basis points in just 16 months from March 2022 to July 2023—the personal consumption expenditures (PCE) price index, which the Fed values most closely, is still nearly one percentage point above its 2% policy target, effectively halting the decline in inflation.
Recent geopolitical conflicts have further exacerbated inflation. On February 28, a standoff erupted between the United States, Israel, and Iran, causing international oil prices to surge by over 40% year-on-year, breaking through the $100 per barrel mark. This conflict directly disrupted one-fifth of the global oil supply, and US gasoline prices have risen by 18%-25% since late February. The soaring energy prices are tantamount to imposing a "hidden tax" on consumers, completely disrupting the Federal Reserve's anti-inflationary efforts. The US Consumer Price Index (CPI) is highly likely to rebound in March, with the energy component expected to rise by over 5% month-on-month.
Before the geopolitical crisis erupted, many central banks around the world had already begun a cycle of interest rate cuts; now the situation has reversed, with interest rate futures indicating that the European Central Bank may restart interest rate hikes, and the Reserve Bank of Australia has already taken the lead in tightening policy. The market has also revised its expectations accordingly, postponing the first US interest rate cut to September, and drastically reducing the total annual rate cut from 50 basis points to only 25 basis points.
Energy costs permeate pricing across all industries, and businesses typically pass on these costs to consumers. Gas station price increases will quickly spread to all categories of goods and services, including clothing, food, housing, and transportation. The Federal Reserve cannot afford to ignore the Persian Gulf geopolitical crisis; a hasty interest rate cut at this juncture would only reignite runaway inflation, wiping out years of anti-inflation efforts.
Three key points to watch at the interest rate meeting will determine the market's direction.
Global investors will be watching three key signals to determine the direction of the Federal Reserve's future policies:
Economic Outlook and Dot Plot
The latest dot plot will reveal whether the Federal Reserve still expects a rate cut this year. If two members raise their interest rate forecasts, the plan to cut rates this year may be canceled altogether.
Policy statement and Powell's speech
The FOMC statement and Chairman Powell's press conference will characterize whether this round of oil price shocks is a short-term disturbance or a long-term, persistent risk. This is the core basis for judging the policy tone.
Economic data revision
Adjustments to GDP growth and unemployment rate forecasts can reflect whether the Federal Reserve believes high oil prices are dragging down economic growth. Recent data has shown that US non-farm payrolls fell by 92,000 in February, and concerns about tightening credit conditions continue to rise.
The economic "hard landing" feared by the market in 2023 did not materialize, but the risks have resurfaced. An economic recession does not necessarily require extremely tight policies; even a slowdown in monetary easing could be the final straw that breaks the camel's back.
Meanwhile, the leadership transition at the Federal Reserve has exacerbated market uncertainty. Current Chairman Jerome Powell's term expires in May, and Kevin Warsh, Trump's nominee, is expected to succeed him. Growing disagreements among FOMC members regarding future policy have created internal divisions and personnel changes, becoming significant factors suppressing stock market valuations. Markets are historically highly sensitive to uncertainty.
Although surveys show that most economists still bet on a Federal Reserve rate cut in June, this expectation is becoming increasingly unrealistic. Current economic data does not support policy easing at all; the US economy is still expanding at a rate of 2.1%-2.5%, far exceeding the Fed's "comfortable inflation-free zone."
The Federal Reserve will keep interest rates unchanged at 3.50%-3.75% this week, and the latest dot plot will also release a stronger hawkish signal, clearly indicating its attitude of "keeping high interest rates for longer" until the second half of this year.
The direct impact on the US dollar and gold; traders need to be wary of volatility.
The interest rate decision on March 18 will directly trigger price fluctuations in the two core assets, the US dollar and gold. Traders need to prepare risk management measures in advance.
US Dollar: Hawkish Stance Will Boost Strength
If the Federal Reserve maintains its hawkish stance and does not cut interest rates, the US Dollar Index (DXY) is expected to continue its upward trend, and high US Treasury yields will support the appreciation of the US dollar against major currencies. The Australian dollar against the US dollar (AUDUSD) is technically overbought and is likely to pull back to around 0.6950; the US dollar against the Japanese yen (USDJPY) is expected to break through the psychological level of 160.00.
If the Federal Reserve unexpectedly releases a dovish signal (which is highly unlikely), the severely oversold British pound will see a significant rebound.
Gold: Under pressure in the short term, supported by geopolitical risks
A stronger dollar and rising real yields will put short-term downward pressure on gold; however, ongoing geopolitical conflicts and gold's inflation-hedging properties will limit the decline in gold prices, exacerbating market volatility. Currently, $4900 is a strong support level for gold prices.
Conclusion: The Federal Reserve will remain hawkish and hold rates steady; the market needs to revise its expectations for rate cuts.
In conclusion, the Federal Reserve will not cut interest rates at its March meeting; it will only send clear signals about its policy path. Given high oil prices and renewed inflation concerns, the market must accept the reality that the number of rate cuts this year will be far fewer than previously expected. Investors should pay close attention to the dot plot and Powell's press conference remarks, as these will directly influence the trading direction of forex, commodities, and equities in the coming weeks.
The market may be hoping for an interest rate cut to ease the situation, but the Federal Reserve must keep in mind the broader geopolitical landscape and inflation control. I predict that this meeting will result in a "hawkish pause," which will both provide strong momentum for a stronger dollar and curb the recent stock market rally.
With inflation worsening, cutting interest rates would be like adding fuel to the fire.
High inflation remains a major concern for the Federal Reserve. This inflationary cycle, once described as "temporary," has now lasted five years, proving its resilience to be far greater than expected. Even with the Fed's most aggressive interest rate hike in decades—a cumulative increase of 525 basis points in just 16 months from March 2022 to July 2023—the personal consumption expenditures (PCE) price index, which the Fed values most closely, is still nearly one percentage point above its 2% policy target, effectively halting the decline in inflation.
Recent geopolitical conflicts have further exacerbated inflation. On February 28, a standoff erupted between the United States, Israel, and Iran, causing international oil prices to surge by over 40% year-on-year, breaking through the $100 per barrel mark. This conflict directly disrupted one-fifth of the global oil supply, and US gasoline prices have risen by 18%-25% since late February. The soaring energy prices are tantamount to imposing a "hidden tax" on consumers, completely disrupting the Federal Reserve's anti-inflationary efforts. The US Consumer Price Index (CPI) is highly likely to rebound in March, with the energy component expected to rise by over 5% month-on-month.
Before the geopolitical crisis erupted, many central banks around the world had already begun a cycle of interest rate cuts; now the situation has reversed, with interest rate futures indicating that the European Central Bank may restart interest rate hikes, and the Reserve Bank of Australia has already taken the lead in tightening policy. The market has also revised its expectations accordingly, postponing the first US interest rate cut to September, and drastically reducing the total annual rate cut from 50 basis points to only 25 basis points.
Energy costs permeate pricing across all industries, and businesses typically pass on these costs to consumers. Gas station price increases will quickly spread to all categories of goods and services, including clothing, food, housing, and transportation. The Federal Reserve cannot afford to ignore the Persian Gulf geopolitical crisis; a hasty interest rate cut at this juncture would only reignite runaway inflation, wiping out years of anti-inflation efforts.
Three key points to watch at the interest rate meeting will determine the market's direction.
Global investors will be watching three key signals to determine the direction of the Federal Reserve's future policies:
Economic Outlook and Dot Plot
The latest dot plot will reveal whether the Federal Reserve still expects a rate cut this year. If two members raise their interest rate forecasts, the plan to cut rates this year may be canceled altogether.
Policy statement and Powell's speech
The FOMC statement and Chairman Powell's press conference will characterize whether this round of oil price shocks is a short-term disturbance or a long-term, persistent risk. This is the core basis for judging the policy tone.
Economic data revision
Adjustments to GDP growth and unemployment rate forecasts can reflect whether the Federal Reserve believes high oil prices are dragging down economic growth. Recent data has shown that US non-farm payrolls fell by 92,000 in February, and concerns about tightening credit conditions continue to rise.
The economic "hard landing" feared by the market in 2023 did not materialize, but the risks have resurfaced. An economic recession does not necessarily require extremely tight policies; even a slowdown in monetary easing could be the final straw that breaks the camel's back.
Meanwhile, the leadership transition at the Federal Reserve has exacerbated market uncertainty. Current Chairman Jerome Powell's term expires in May, and Kevin Warsh, Trump's nominee, is expected to succeed him. Growing disagreements among FOMC members regarding future policy have created internal divisions and personnel changes, becoming significant factors suppressing stock market valuations. Markets are historically highly sensitive to uncertainty.
Although surveys show that most economists still bet on a Federal Reserve rate cut in June, this expectation is becoming increasingly unrealistic. Current economic data does not support policy easing at all; the US economy is still expanding at a rate of 2.1%-2.5%, far exceeding the Fed's "comfortable inflation-free zone."
The Federal Reserve will keep interest rates unchanged at 3.50%-3.75% this week, and the latest dot plot will also release a stronger hawkish signal, clearly indicating its attitude of "keeping high interest rates for longer" until the second half of this year.
The direct impact on the US dollar and gold; traders need to be wary of volatility.
The interest rate decision on March 18 will directly trigger price fluctuations in the two core assets, the US dollar and gold. Traders need to prepare risk management measures in advance.
US Dollar: Hawkish Stance Will Boost Strength
If the Federal Reserve maintains its hawkish stance and does not cut interest rates, the US Dollar Index (DXY) is expected to continue its upward trend, and high US Treasury yields will support the appreciation of the US dollar against major currencies. The Australian dollar against the US dollar (AUDUSD) is technically overbought and is likely to pull back to around 0.6950; the US dollar against the Japanese yen (USDJPY) is expected to break through the psychological level of 160.00.
If the Federal Reserve unexpectedly releases a dovish signal (which is highly unlikely), the severely oversold British pound will see a significant rebound.
Gold: Under pressure in the short term, supported by geopolitical risks
A stronger dollar and rising real yields will put short-term downward pressure on gold; however, ongoing geopolitical conflicts and gold's inflation-hedging properties will limit the decline in gold prices, exacerbating market volatility. Currently, $4900 is a strong support level for gold prices.
Conclusion: The Federal Reserve will remain hawkish and hold rates steady; the market needs to revise its expectations for rate cuts.
In conclusion, the Federal Reserve will not cut interest rates at its March meeting; it will only send clear signals about its policy path. Given high oil prices and renewed inflation concerns, the market must accept the reality that the number of rate cuts this year will be far fewer than previously expected. Investors should pay close attention to the dot plot and Powell's press conference remarks, as these will directly influence the trading direction of forex, commodities, and equities in the coming weeks.
The market may be hoping for an interest rate cut to ease the situation, but the Federal Reserve must keep in mind the broader geopolitical landscape and inflation control. I predict that this meeting will result in a "hawkish pause," which will both provide strong momentum for a stronger dollar and curb the recent stock market rally.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
