The Federal Open Market Committee (FOMC) voted to keep the federal funds rate target range steady at 3.50%–3.75%. There was one dissent in favor of a 25-basis point (bps) cut, submitted by Governor Stephen Miran.

Changes to the FOMC Statement:

• The Federal Reserve (Fed) maintained its description of growth as “solid”. It also kept its assessment of inflation unchanged, describing it as "somewhat elevated". The labor market description was adjusted to reflect limited changes in recent months.
• On the balance of risks, the Fed added the “implications of developments in the Middle East for the U.S. economy are uncertain”.
• The Fed maintained its existing forward guidance that the “extent and timing” of additional rate adjustments would be data dependent.

Summary of Economic Projections:

• Investors received FOMC participants’ outlooks for employment, growth, and inflation. Relative to December, their inflation and growth forecast both increased. The median of the Committee continues to expect a convergence towards an equilibrium of around 2% growth, 4% unemployment, 2% inflation, and a 3% Fed Funds Rate over the next few years.
  • The Core Personal Consumption Expenditures (PCE) inflation forecast increased to 2.7% in 2026 and 2.2% in 2027 and remained unchanged at 2.0% in 2028. The number of participants who saw upside risks to their core inflation forecast increased from 12 to 16 out of 19 members.
  • The Committee’s growth forecast ticked up to 2.4% in 2026 and 2.3% in 2027 and 2.1% in 2028. The longer run growth forecast increased from 1.8% to 2%. The number of participants who saw downside risks to growth rose from 8 to 14 out of 19 members. No participants see Gross Domestic Product (GDP) risks weighted to the upside.
  • The unemployment rate forecast was unchanged at 4.4% in 2026, ticked up to 4.3% in 2027 and remained unchanged at 4.2 in 2028. The longer run unemployment rate was also unchanged at 4.2. The number of participants who saw upside risks to their unemployment rate forecast rose from 13 to 16 out of the 19 members.
• The median expectation for the path of the Fed Funds rate was maintained. 
  • The median member continued to expect one additional cut in 2026 followed by one more in 2027 ending at 3.125%, where it remains through 2028.
  • The long run dot drifted up to 3.125% - the highest estimate by the median of the committee since 2016.

Key Quotes from Chair’s Press Conference:

On inflation:

• “We are strongly committed to doing what it takes to keep inflation expectations anchored at 2%. I think it is important that we do that. Very important.”
• “The elevated readings reflect inflation in the goods sector boosted by the effects of tariffs. Near term measures of inflation expectations have risen in recent weeks, likely reflecting the disruptions in oil, longer term expectations remain consistent with the 2% goal.”
• “The implication of the events in the Middle East for the U.S. economy are uncertainly. In near term, higher energy prices will push-up overall inflation, it is too soon to know the scope and duration of the potential effects on the economy.”
• “The thing that is really important that we see this year is progress on inflation through a reduction in goods inflation as the one-time effects on prices of tariffs go through the system and the economy. That is the main thing we're looking for, going into this exercise….. Of course, it is standard learning that you look through energy shocks, but that has always been dependent on remaining inflation anchors. And now what you mention the broader context of inflation above target. We have to keep all of those things in mind.”

On the desired stance of policy:

• “Not too restrictive because of the weakness in the downside risk of the labor market. We're balancing the two goals in a situation where the risks to the labor market are to the downside, which would call for lower rates and the risks to inflation are to the upside or higher rates, not cutting. We're in a difficult situation. We feel like the framework calls to balance the risks. We feel where we are now is on the higher borderline of restrictive versus not restrictive, we feel like that is the right place to be.”
• “Essentially it is that, you know, the forecast is that we will be making progress on inflation…. You know, the rate forecast is conditional on the performance of the economy. So if we don't see that progress. Then you won't see the rate cut.”

On his remaining tenure:

• “If my successor is not confirmed by the end of my term as chair, I would serve as chair pro tempore until he is confirmed. That is what the law calls for. That is what we have done on essentially occasions including involving me. And what we will do in this situation. And while I'm at it. On the question of whether I will leave while the investigation is ongoing. I have no intention of leaving the board until the investigation is well and truly over with transparency and finality, I would refer you to the statement that was in the Fed's brief that you all have seen. I won't have anything more for you on that. On the question of whether I will serve as a Governor after my term ends and the investigation is over, I have not made that decision yet. I will make that decision based on what I think is best for the institution and for the people we serve.”

On the possibility of rate hikes:

• “It did come up today. The possibility that our next move might be an increase did come up at the meeting as it did the last meeting. The vast majority of participants don't see that as their base case. We don't take things off the table.”

On dual mandate tension and stagflation:

• “There is tension between the two goals. The upward risk for inflation and downward risk for employment. That puts us in a different situation. You know, when we use the term stagflation, I have to point out that was a 1970s term at a time when unemployment was double figures and inflation and misery index. That is not the case. We have unemployment really close to longer run normal and inflation that is one percentage point above that. Calling that stagflation, I would reserve the term stagflation for a much more serious set of circumstances. That is not the situation we're in. What we have is some tension between the goals. We're trying to manage our way through it. Very difficult situation nothing like what they faced in the 1970s. I reserve stagflation for that period, maybe that is just me.”

Our View:

• The Fed held rates steady as previously expected. The developments in the Middle East have caused uncertainty to rise and pose risks to both sides of the Fed’s dual mandate. Since the January meeting, hiring trends have remained weak and growth has moderated but firings remain low. The Fed’s preferred measure of inflation, PCE, is running notably hotter than the Consumer Price Index (CPI) and other trimmed mean measures of inflation that continue to reflect broader cyclical disinflation. Like last year’s trade shock, we expect the Fed to look through the energy price increase, choosing instead to focus on wage and services disinflation in addition to inflation expectations over the medium term.
• In the press conference, Powell emphasized data dependence amid higher uncertainty and to take their forecasts with a “grain of salt”. Nevertheless, the median of the Committee continues to expect further inflation progress and a few more rate cuts in the forecast horizon. He stipulated that the Committee's expectation for lower inflation this year must be realized for additional rate cuts along with anchored inflation expectations.
• We maintain our base case of sub-trend growth. Real gross domestic product averaged 2.1% in 2025. Growth in the fourth quarter moderated as consumer spending slowed and the government shut down. Business investment in sectors such as technology and artificial intelligence (AI) remains robust but a broader capex boom outside of tech is limited.
• Despite the recent developments in energy markets which pose upside risks to realized inflation in the near-term, we maintain our trading range for the 10-year U.S. Treasury at 3.75%–4.25%. Limiting yields from falling meaningfully below the bottom end of the range is the lack of a sharp deterioration in labor markets or pick up in layoffs that would cause the Fed to pull forward rate cuts. Limiting yields from rising meaningfully above the higher end of the range is the stability of long-term inflation expectations despite the recent increase in oil prices and the skew around the Fed’s next policy move still being biased toward rate cuts over rate hikes.