While the FRB kept its policy rate unchanged, the dollar strengthened broadly and equities fell against the backdrop of worsening conditions in the Middle East and higher oil prices. Goto Yujiro (後藤祐二朗) of Nomura Securities said that dollar strength would continue until tensions ease.
At the March 2026 FOMC meeting, the FRB kept its policy rate unchanged at 3.50-3.75%, adding language to its statement that the impact of the situation in the Middle East on the US economy was uncertain. Votes for a rate cut were in the minority, while Governor Waller supported keeping rates unchanged. Economic forecasts were generally revised upward, and the outlook for the core PCE deflator was also raised, but the median dot continued to indicate 25 bp of rate cuts in both 2026 and 2027.
Chair Powell emphasized that the Fed was in no hurry to cut rates and expressed concern that surging energy prices could push inflation higher. While he also mentioned the possibility that the next policy change could be a rate hike, the overall view presented was that rates would remain unchanged at the next FOMC meeting as well.
Risk aversion driven by worsening conditions in Iran continued, with NY crude oil rising to around $100 per barrel and the VIX increasing, reflecting deteriorating market sentiment. The dollar strengthened while US equities declined, heightening concern over the yen exchange rate as well.
In the short term, the positioning of overseas private investors in US Treasuries remains uncertain, and the dollar's direction could fluctuate depending on developments in the Middle East. Some market participants also believe that the FRB could again adopt a stronger easing bias if tensions involving Iran subside.