As the central bank of the United States, the Federal Reserve, often referred to as the Fed, plays a pivotal role in shaping the nation’s economic landscape. Tasked with implementing monetary policy, the Fed uses a variety of tools to influence the economy, the most prominent of which is the ability to set the target federal funds rate. This rate, a range of interest rates at which banks lend to one another overnight, is crucial for investors as it can either stimulate or slow down economic activity.
It may seem unusual that banks, the perceived holders of cash, need to borrow from each other. However, to comply with regulations, banks must maintain a certain reserve level. Occasionally, they find themselves needing to borrow from other banks to meet these requirements. The federal funds rate, while primarily a tool for interbank lending, has broader implications. It indirectly influences various commercial and consumer interest rates, which in turn can affect corporate financial performance and, ultimately, the value of shares. This is why, especially during uncertain times, the Fed’s decisions are closely monitored.
Central to these decisions is the Federal Open Market Committee (FOMC), a segment of the Fed responsible for key monetary policies, including the federal funds rate. Comprising twelve members—seven from the Board of Governors, the president of the Federal Reserve Bank of New York, and four other Reserve Bank presidents—the FOMC meets eight times annually to vote on policy decisions. While seven members do not vote, they still contribute to the discussions. At their most recent meeting in March, the FOMC decided to maintain the federal funds rate range at 3.5% to 3.75%.
2026 FOMC Meeting Calendar And Expectations
Furthermore, the FOMC releases a Summary of Economic Projections (SEP) during half of their meetings, offering insights into potential trends in economic growth, unemployment, and inflation. This report, essentially an informed forecast, offers a glimpse into the economic future. Upcoming FOMC meetings for 2026, as listed in the schedule, will also indicate which meetings will include a SEP release.
The March 2026 FOMC meeting highlights a significant takeaway: uncertainty surrounding the federal funds rate. The Fed operates under dual mandates from Congress—ensuring maximum employment and maintaining price stability, which translates to controlling inflation around a 2% target.
Largest Takeaways From The Most Recent FOMC Meeting
The challenge lies in balancing these mandates. When unemployment is high, the Fed typically lowers interest rates to spur business activities and boost employment. Conversely, in times of high inflation, the Fed raises interest rates to temper spending, as higher rates can act like a surcharge, reducing consumer and business purchases, thus easing price pressures. This delicate balancing act underscores the complexity of the Fed’s task in steering the economy.
The difficulty is that when unemployment is high, the Fed looks to lower interest rates to encourage business activity, which leads to increased employment. However, when inflation is high, the Fed increases interest rates, which acts like a surcharge on product and service prices. The FOMC assumes that higher interest rates cause businesses and the public to buy less, cooling the economy and sending price increases down because demand is lower.
Government policies and activities, such as tariffs and the war against Iran, have created uncertainty, with implications like higher energy that would “push up overall inflation,” as Fed Chair Jerome Powell said in the press conference after the March 2026 FOMC meeting. The hike of the Consumer Price Index inflation measure from February to March showed exactly that. According to the U.S. Bureau of Labor Statistics, inflation rose from 2.4% in February to 3.3% in March, with almost three-quarters of the increase due to higher gasoline prices. Until things settle, the FOMC is likely to keep rates where they are.
Understanding The Fed Projections and Dot Plot
Each of the FOMC’s 19 officials, seven more than the 12 FOMC voting members, submits their individual projections of gross domestic product (GDP) growth, the unemployment rate and inflation for the current year, as well as for the following two and then for the “longer run.” The inflation figures used are the Personal Consumption Expenditures produced by the U.S. Bureau of Economic Analysis, which is the Fed’s preferred measure of inflation. The SEP shows the median results of the collected projections, the central tendency and the high-to-low range. The central tendency and range figures help show how concentrated the estimates are, which helps explain how much consistency — how much agreement — there is to the projections.
Among some figures is a graph called the dot plot, which is included in an SEP. Consider the dot plot from March 2026 SEP as an example. For each year, 2026 through 2028, and then the longer run, the dots show how the 19 Fed executives projected the midpoint of the federal funds rate range for each year. The shifting patterns over time demonstrate, like a small example of the wisdom of crowds, how the executives as a whole see the development of interest rates.
Current Economic Projections and Market Shifts
The March projections were moderate. According to the SEP released in March 2026, here are a few of the most significant takeaways:
- Projected 2026 change in real GDP: 2.4% in 2026, 2.3% in 2027, 2.1% in 2028, and 2.0% in the longer run
- Unemployment rate projections: 4.4% in 2026, 4.3% in 2027, 4.2% in 2028, and 4.2% in the longer run
- PCE inflation: 2.7% in 2026, 2.2% in 2027, 2.0% in 2028, and 2.0% in the longer run
- Core PCE inflation (inflation without the variability of energy and food): 2.7% in 2026, 2.2% in 2027, and 2.0% in 2028.
The dot plot shows how the estimates shift from a top-heavy emphasis on a 3.5% center to a 3.25% to 3.75% range. The dot plot shows how the expected federal funds rate was expected to move downward.
However, all projections have to be taken tentatively because of such factors as the long-term potential impacts of the Iran War, the potential for more tariff disagreements, and instability in labor markets, including what artificial intelligence will mean to jobs growth and existence. Overall Consumer Price Index inflation rose to 3.3% in March after 2.4% in February.
Will The Fed Cut Interest Rates In 2026?
The future direction of the Fed this year is so uncertain that there are sharp disagreements among experts as of early April about what might happen.
“Our expectation this year is that they would cut one or two times,” said Mike Reynolds, vice president of investment strategy at Glenmede, a wealth management firm.“We see no signs that the economy is stalling, but we’re still meaningfully above zero economic growth projections for this year. The question is if inflation will become a persistent problem.”
Will The Fed Raise Interest Rates In 2026?
Could the Fed, instead, raise interest rates this year? Some think it’s likely. “There’s an old Wall Street adage that markets dislike uncertainty,” said Robert Johnson, CEO of Economic Index Associates, and professor of finance at Creighton University’s Heider College of Business. “President Trump actually prides himself on being unpredictable. What you have with the Fed is the Fed trying to kick a field goal through moving goal posts. For the first time in years, the prevailing sentiment is that a rate hike is much more likely than a rate increase.”
How Rate Shifts Impact Your Portfolio
Rate shifts can affect a portfolio because they affect borrowing costs for both companies and consumers. When rates go up, running a business becomes more expensive. Consumers face greater economic stress and can find it harder to pay their expenses. That means downward pressure on corporate earnings and share prices. When rates go down, consumers feel relief from pressure. Companies find it less expensive to operate, enabling higher profits, so likely, increased market caps with improved share prices.
Currently, it’s impossible to know which way things will move, how tariffs will shift over time, and the chance that energy costs will continue to be high. The latter will remain elevated, not returning to early 2026 prices until maybe 2028, according to the U.S. Energy Information Administration. Upward pressures on inflation will continue.
If the Fed raises interest rates to battle inflation, many types of investments could feel a sting. Fixed-income investments would fall in value because new bonds issue at higher interest rates and prices move inversely to yields. REITs face higher borrowing costs, adding pressure on profitability. For stocks, it depends on the industry, according to Johnson. Consumer goods and utilities tend to do well. Autos, durable goods and apparel are among the worst performers because people put off discretionary spending.
Investor Strategies For A Long-Term Focus
“The normality of the environment is to find big blue-chip No. 1 market share companies in any industry with proven management teams in good times and bad,” said Stephanie Link, chief investment strategist, head of investment solutions and equity portfolio manager at Hightower Advisors. She said when investors start selling stocks in such companies, buy some shares. “You want to try to buy low and sell high. People get scared when markets sell off. Companies are No. 1 for a reason.” Regarding AI, she said to look for the companies that make the technologies possible. Some examples include businesses that build the power grid, provide electrical power and address cybersecurity.
Consider your time horizon. Don’t make sudden changes when your investment window remains long, as things tend to correct over time. “I would suggest that one not change their asset allocation unless something fundamental changed in their lives,” like divorce, kids going to college, a health crisis or retirement, when you need money, said Johnson. “To change your investments based on what transitory things happen in the market is wealth destruction.”
The markets and the economy are in uncertain times. It’s impossible to know what the Federal Reserve will do in setting interest rates because the future effect of inflationary pressures is hazy. If the Fed increases interest rates in response to inflation at a future Fed meeting, virtually all asset classes will feel downward pressure. Rather than trying to time the market, experts suggest holding to your existing allocations unless something fundamental in your life has changed, in which case, talk to your financial advisor.
