Fed Sees Higher Inflation Ahead and Continues to Pencil in One 2026 Cut

Federal Reserve Chair Powell Holds Monthly Press Conference

Alright, we have the Fed’s latest policy decision, which, as expected, left the Fed funds rate unchanged. We also have the central bank's updated Set of Economic Projections, which has stronger GDP expectations for this year and next, but also a step up in inflation expectations for those years as well. With the increase in both PCE and core PCE inflation expectations for this year, it’s not surprising the Fed continued to telegraph just one rate cut for 2026.

During Fed Chair Powell’s presser, we’ll be listening for puts and takes on today’s decision, as well as how it’s thinking about the year-to-date upswing in inflation pressures, the impact of the U.S.-Iran conflict, and the jobs market. In the policy statement for today’s decision, a line about the Middle East was added: “The implications of developments in the Middle East for the U.S. economy are uncertain.” That should be read as the Fed is aware and watching for the impact we’ve been talking about over the last several trading sessions. 

From a data perspective, the soonest we could see it turn up would be in some of the March data we’ll start to get as we enter April, but the greater impact may not be felt until we get the April data in May.

On the subject of rate-cut timing, our thinking is that barring a few more Employment Reports like the one we received for February, the Fed is likely to hold off on the rate cut front until the renewed upward trend in inflation data reverses and is back on track toward its 2% target on a sustained basis. Given our comments over the last few days about rising oil and related prices, and the subsequent impact, but also President Trump’s 15% blanket tariff, odds are the next rate cut is likely to come in H2 2026 at the soonest.

Now let’s see what Powell has to say…