By Michael Conerly, Senior Portfolio Manager

The Federal Open Market Committee (FOMC) met on March 18th and held its federal funds rate steady at 3.50-3.75% for the third consecutive meeting.¹ In a normal environment, this meeting would have commanded a lot of attention on its own, as there is plenty to discuss about the Federal Reserve's (Fed) path forward. But the ongoing conflict with Iran has shifted the focus, and right now, markets are largely responding to that story. The FOMC meeting happened to fall in the middle of it.

That context matters when trying to make sense of what came out of this meeting. The committee released an updated Summary of Economic Projections,² but the honest takeaway is the Fed approached it with low conviction. The uncertainty surrounding the war makes it difficult to put much weight behind the projections, which the Fed acknowledged.

That lack of conviction makes sense when you consider the FOMC faces risks on both sides of its dual mandate. Inflation remains above its 2% target,³ with Fed Chair Jerome Powell admitting it has taken longer than expected to curb inflation. At the same time, stagnant labor growth is uncomfortable as net job creation has stalled, even though unemployment is historically low, hovering at 4.4%.² The issue is that visibility is cloudy; higher energy prices fuel inflationary pressures and threatens economic growth.⁴ The logical move was for the Fed to hold steady and allow time to assess the evolution of this energy price shock, as well as the impact and scope to the broader economy. There was broad consensus on that decision, with only Governor Miran dissenting.

Looking ahead, the Fed feels the policy rate is near its neutral level, but still projects a 25 basis point cut in 2026 and 2027.⁵ However, Powell was clear that those projections are conditional. For a cut to materialize, both tariff-induced passthroughs on goods will need to end and service inflation would need to continue fading. If either stalls, the case for cutting weakens. Markets have already priced that possibility in, no longer expecting a cut this year, even as the Fed's own projections still show one.⁶

There is also a leadership change coming. Chair Powell's term ends on May 15th, and Kevin Warsh is the nominee to succeed him pending Senate confirmation. Warsh was once regarded as an inflation hawk during his time on the Fed's Board of Governors from 2006 to 2011, but his more recent comments have leaned dovish.⁷ How much of that reflects his own thinking versus outside influence will become clearer over time. What matters is that monetary policy is built on consensus—the chair holds one vote among 12 on the FOMC, and the current board has been consistent about protecting the Fed's independence.

The war in Iran introduced a layer of unpredictability that even the Fed is not willing to project through, which can be uncomfortable to sit with. What we know is that the principles of long-term investing have held up through difficult periods before, and the approach that has served diversified portfolios well has not changed. Staying the course, avoiding reactive decisions, and leaning on a sound investment process is still the right posture. If you want to talk through how the current environment might affect your portfolio, please reach out to your Exencial advisor.

Sources:

1. The Federal Reserve (3/18/26) - Federal Reserve Issues FOMC Statement
2. Federal Open Market Committee (3/18/26) - Summary of Economic Projections
3. Bureau of Economic Analysis (3/13/26) - Personal Income and Outlays, January 2026
4. CBS News (3/19/26) - Oil Prices Could Reach Record Highs, Analysts Warn. Here's What It Could Mean For The U.S. Economy
5. Fox Business (3/18/26) - Federal Reserve Holds Interest Rates Steady
6. CNBC (3/19/26) - Traders Now See Little Chance Of An Interest Rate Cut This Year Following Fed Decision
7. PBS News (1/30/26) - What Trump's Nomination Of Inflation Hawk Kevin Warsh Means For The Federal Reserve

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