Market Update 3/19/26

Market Update

As expected, the Fed held rates steady at its March FOMC meeting, leaving the target for the fed funds rate at 3.50%-3.75%. Given the current environment—characterized by stronger-than-anticipated economic growth alongside geopolitical risks—the Fed is likely in a “wait-and-see” mode. Policymakers will continue to monitor developments in oil prices and the potential impact on inflation and the economy before making any material adjustments to monetary policy.

While the statement indicated economic growth is expanding at a solid pace, it also highlighted an uncertain economic backdrop, driven primarily by the Middle East conflict and the associated spike in oil prices. The “dot plot” summary of economic projections showed little change, modestly increasing expectations for near-term economic growth, and indicated slightly higher inflation projections—likely a reflection of current elevated oil prices.

Importantly, there was no change to the broader trajectory for monetary policy. The Fed continues to project one 25 bp rate cut through the remainder of the year, which aligns with our current expectations. Indeed, at his press conference, Fed Chair Powell indicated that current monetary policy remains moderately restrictive, and we believe the Fed wants to move towards a more neutral rate of ~3% over time.

One relative surprise from the meeting was the presence of only one dissenting vote (Miran), suggesting greater cohesion among voting members on monetary policy. Ahead of the meeting, expectations were for two to three dovish dissents. Both Miran and Waller dissented in favor of a 25 bp rate cut at the January meeting, and there had been some expectation that Bowman might join them this time around.

Powell emphasized the expectation that progress will be made on inflation as the impact of tariffs works through the economy. With that said, he acknowledged there is a great deal of uncertainty. Should the price of oil stay elevated for an extended period, it will have a larger inflationary impact; should it be short-lived, the impact will be smaller. In short, the Fed is remaining data dependent and will want to see how developments unfold before making its next change to interest rates.  

Given the current economic backdrop and uncertainty, we anticipate the Fed will remain in “wait-and-see” mode with a bias towards lower interest rates over time.  

If history is a guide, the current monetary policy stance may be positive for stock market returns, though we are wary of still-stretched valuations and stock market concentration, which we believe may act to moderate stock market returns relative to the very strong returns experienced over recent years. In addition, uncertainty associated with the Middle East is likely to cause a period of heightened volatility.

With respect to geopolitics, we believe maintaining a long-term focus and avoiding investment decisions driven by short-term headlines will be rewarded. History shows that geopolitical conflicts and global disruptions have occurred time and again—wars, terrorist attacks, regional conflicts, political instability, and economic shocks. Yet, through these events, markets have demonstrated resilience and a long-term upward bias.

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