Fed Watch – 3/20/2026

The below transcript is a literal translation of the podcast audio that has been machine generated by Notta.

Hi, I’m Lauren Saidel-Baker and thank you so much for joining us for this March 20th edition of Fed Watch. Well, it wasn’t the big week that we had billed. There was no rate move at the Fed meeting this week. Now that was largely expected. We had not been expecting any rate moves, really no significant rate moves for the near term to foreseeable future. And it seems like the market is coming more and more to our point of view here at ITR economics. So a lot of factors going on there. We’re going to talk oil prices and inflation a little bit later in this episode, but just to set the stage with market expectations. Whereas a week or so ago, we had been still seeing that roughly 50-50 expectation of a cut coming at the June meeting. Now the market expectation is actually pushed back to the next rate cut coming mid next year. So expectation is not for any move at this point, but certainly no significant cuts to rates for the remainder of 2026.

We’ll see how that develops over time. What was really interesting to see out of this Fed meeting in particular is that the members of the committee actually did discuss whether the next move could be upward and not downward. If you recall that something that we have been talking about as not our base case, but certainly as a potential outcome that we will see rates hold at this level. And then as inflation does start to rear its ugly head again, that we could see rates move up. We certainly still do expect higher interest rates generally for the remainder of this decade.

So we will be watching those market odds as we always do, but until then it seems like the Fed is largely on hold. That’s not to say that there aren’t some fireworks going on though, especially behind the scenes. Powell was asked during the press conference again about his plans with a new nominee for chair coming from the Trump administration. He claims to have not made his decision yet, but will be staying in place at least long enough for his successor to be confirmed by the Senate, even if that does go after the May date that’s kind of set in his term here. But he also commented on the Justice Department probe that we saw come from the Trump administration as well. So he says he wants to stay until that investigation is done and it seems like very well done and finished and put to rest.

So again, seeing this thing through, there’s no time expected as a deadline for that. We’ll be watching in the coming months, but whether Powell stays on as a voting member, even beyond the next Fed chair coming in, that remains up in the air. So we’ll be watching his decisions. We’ll be watching the general movement of the committee, keeping in mind that there are a number of voting members. This never comes down to just one person. Also at the meeting this week, we saw the new economic projections come out. They did move higher, both in terms of expected longer run growth rate, as well as longer run interest rates. Now Powell claims that is due to productivity growth, but not necessarily productivity growth caused by artificial intelligence.

This is a little bit contentious because Warsh, the potential incoming chair of the Fed, he has made the claim that faster productivity growth can allow rates to be lower without triggering inflation. There’s something of a almost academic disconnect between these different schools of thoughts. And as you can tell, our current president is favoring the school of thought that has some reason, some justification for those lower rates. So whether that’s productivity growth, whether that’s AI or some other factor is really going to come into the discussion forefront in the months and quarters to come.

Now I mentioned oil prices and inflation is still the big wild card. As we look at the labor side of things, we’ve been unpacking those numbers one week month of data clearly does not make a trend. We still do see general balance on that side of the dual mandate. So looking at inflation with the major question, the big uncertainty point that is this war in the middle east, Powell would not respond to the question about how high oil prices needed to go before it could push a rate move. He dodged that question. We certainly do not expect it. Yes, oil prices will strain certain income segments, certain types of consumers. There will be a bit of, let’s say, pass through to the overall macro economy. But it’s very important to know that today we as Americans, we just spend a lot less on energy costs as a percentage of our total spending than we have historically. Any kind of long run average, we are well below that level. And in fact, on a personal consumption expenditures basis, we’re very, very close to the record low the that we have ever spent on energy as a share of our total budgets today. That number is about 3.7%.

So this is going to be manageable for the consumer overall. Yes, we as Americans love to complain about prices at the pump. However, for macroeconomic impacts, I think those are going to be relatively isolated. Compared to if a shock to oil prices of this nature had come 20, 30 years ago, well, we would have seen much more broad and much more diffuse effects. So overall impact on inflation, not moving it in the right direction, probably some support there. But this is not the only thing causing higher prices. Of course, we are following the conflict in the Middle East for many more reasons than that from a humanitarian point of view. We certainly hope that that suffering is alleviated very quickly. But from the longer term macroeconomic drivers, we have seen previous cases like the Ukraine war, for example, where we get into more of these muddle through conflicts where things are extended are really drawn out. And we’ve seen that oil prices while they spike in the short term, they often do come back down in the medium to longer term. So that is our base case expectation. If you need more information on that, we have a lot of this out on our blog posts on other ITR economics resources, please talk to your economist if you do have additional questions there.

Otherwise, though, we’ll be back at it next week. Thank you so much for joining us for this episode of Fed Watch. I’m Lauren Saidel-Baker. We’ll see you next week.