The Federal Reserve clarifies the reasons for refusing to cut interest rates: the policy logic of normalized high interest rates and the impact on global markets

On March 18, 2026, the Federal Reserve concluded its second monetary policy meeting of the year and announced that it would keep the target range for the federal funds rate unchanged at 3.5% to 3.75%. This was the second consecutive meeting in which the Fed chose to “hold steady,” consistent with market expectations, but the signals revealed in the meeting statement and economic projections are far more complex than a simple “keep unchanged.”

Amid the multiple shocks of a sudden escalation in Middle East geopolitical tensions, violent fluctuations in energy prices, and a renewed rebound in inflation data, the Fed’s decision-making logic is undergoing a subtle yet profound reconfiguration. This article will systematically sort out the underlying logic behind the Fed’s refusal to cut interest rates and its potential impact on the crypto asset market from four dimensions: details of the meeting resolution, the latest inflation data, Chair Powell’s policy statements, and shifts in market expectations.

The Fed’s Second “Hold Steady” of the Year

The Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting on March 18, 2026, deciding to keep the target range for the federal funds rate unchanged at 3.5% to 3.75%, with a vote of 11 to 1. The only dissenting vote came from Federal Reserve Governor Stephen M. Milam, who argued for a 25 basis point cut to the target range for the federal funds rate at this meeting.

Meanwhile, the Fed Board approved maintaining the interest rate on reserve balances at 3.65%, keeping the primary credit rate at 3.75%, and holding the secondary credit rate at 4.25%, which is 50 basis points higher than the primary credit rate.

The meeting statement made several noteworthy wording adjustments: first, adding the phrase that “the developments in the Middle East are still uncertain in terms of their impact on the U.S. economy”; second, changing the previous statement about employment from “showing signs of some stabilization” to “the unemployment rate has changed little in recent months.”

In the summary of economic projections, Fed officials raised the median forecast for the 2026 personal consumption expenditures price index from 2.4% in December last year to 2.7%, and raised the median core PCE forecast from 2.5% to 2.7%; the median forecast for 2026 GDP growth was slightly raised from 2.3% to 2.4%; and the unemployment rate forecast was maintained unchanged at 4.4%.

The dot plot shows that the median federal funds rate will fall to 3.4% by the end of 2026, consistent with the previous forecast, implying that there may be only one rate cut during the year. The number of officials forecasting no rate cuts this year increased from 4 to 7; 7 officials expect one rate cut. The dispersion in the dot plot has clearly narrowed, indicating that caution within the committee about rate cuts is increasing.

Three Sets of Core Indicators Reveal the Basis for the Decision

Inflation: the rebound exceeds expectations, with core data relatively moderate

The U.S. Department of Labor released the March Consumer Price Index (CPI) on April 10, 2026, showing that U.S. CPI rose 0.9% month over month in March, the largest single-month increase since June 2022; it rose 3.3% year over year, accelerating sharply from 2.4% in February and reaching the highest level since 2024. After excluding the more volatile food and energy categories, core CPI rose 0.2% month over month and 2.6% year over year, both slightly below market expectations.

This set of data has very distinct structural characteristics: the energy component rose 10.9% month over month, the largest increase since September 2005; gasoline prices surged 21.2% month over month, the largest single-month increase in the series since it began in 1967, contributing nearly three-quarters of the overall CPI month-over-month increase. By contrast, core inflation was relatively steady: housing costs rose 0.3% month over month, core goods rose only 0.1% month over month, and used car prices declined for the fourth consecutive month.

Analysts point out that after stripping out the one-time disruption from oil prices, overall inflation remains resilient but shows signs of slowing. The 2.6% year-over-year core CPI data is below the expected 2.7%, indicating that the energy shock has not yet been clearly transmitted to core inflation. The March CPI data could be an “outlier,” and the inflationary impact of oil prices may take longer to gradually appear.

Labor Market: structural stability amid low net job gains

From employment data, the labor market exhibits the characteristics of “low inflow, high stability.” The Fed statement notes that “job growth remains at low levels, and the unemployment rate has changed almost not at all in recent months.” Over the past eight months, the unemployment rate has fluctuated narrowly between 4.3% and 4.5%.

Fed Chair Powell acknowledged at the press conference that job growth is at a relatively low level and the employment market balance is somewhat fragile, but he also noted that the February employment data was significantly distorted by one-off factors such as strikes and extreme weather. “Many indicators show that the labor market has a certain degree of stability.”

Earlier concerns about employment had pushed the Fed to cut rates by 75 basis points by the end of 2025. But at present, most policymakers believe interest rates are approaching a neutral level—neither significantly restraining economic growth nor excessively stimulating demand.

Economic growth: consumption momentum that exceeds expectations

On economic growth, the Fed raised its median forecast for 2026 real GDP growth from 2.3% to 2.4%, raised its 2027 forecast from 2.0% to 2.3%, and increased the long-term potential growth rate from 1.8% to 2.0%. According to data from the Federal Reserve Bank of Atlanta, the GDP growth tracking estimate for Q1 2026 is 2.0%, while Goldman Sachs analysts believe the figure could be as high as 2.5%.

This economic resilience is partly attributable to the ongoing effects of the fiscal stimulus from the “Major Beautiful Bill” passed in 2025. Although high oil prices have somewhat suppressed consumer spending, overall demand remains robust. The growth performance exceeding expectations means the Fed does not need to use rate cuts to prop up the economy, allowing the policy focus to concentrate on inflation management.

Breakdown of Public Sentiment Views: Multiple Perspectives from Market Pricing to Professional Institutions

Market pricing: a dramatic reversal from expectations of multiple rate cuts to zero cuts

Market expectations for Fed rate cuts have experienced extremely sharp fluctuations. Just six weeks ago, traders still expected the first rate cut before June 2026, with potentially another cut before the end of the year, and there was even about a 40% probability of a third rate cut. As of early April 2026, market consensus had shifted to zero rate cuts—federal funds futures pricing indicates that the market expects the year-end policy rate to be only slightly below the current level.

But as the U.S. and Iran reached a temporary ceasefire agreement, market sentiment quickly recovered. Based on data from the CME FedWatch tool, the probability of a rate cut by year-end jumped from 14% before the ceasefire to about 43% on April 8. Market pricing implies a December policy rate of around 3.5%, below the current effective rate of 3.64%.

This sharp fluctuation reflects the enormous disruption that geopolitical uncertainty can cause to interest rate expectations. When war risks rise, expectations for rate cuts instantly go to zero; when ceasefire signals appear, expectations quickly rebound.

Professional institutions: divergence in the inflation narrative and consensus on “high-rate normalization”

At the March 18 press conference, Fed Chair Powell stated clearly that the Fed will not cut rates unless inflation cools down. “What really matters this year is seeing progress on inflation,” Powell said. “If we don’t see that progress, there will be no rate cuts.” He also revealed that although rate hikes are not the baseline scenario for most policymakers, this option has been mentioned again in discussions.

At a speech at Harvard University at the end of March, Powell further elaborated on the policy logic: the Fed tends to “look through” short-term energy supply shocks and does not rush to raise rates, but if energy shocks cause the public’s long-term inflation expectations to become “unanchored,” it will no longer be able to sit idly by. “If similar supply shocks occur repeatedly, the public may gradually form long-term expectations of higher inflation.”

There are differences in how investment institutions interpret this. Krishna Guha, global policy and central bank strategy head at Evercore ISI, said after the ceasefire that the market is pricing in a clear inclination toward one rate cut by the Fed within the year, and that risks of inflation shocks threatening inflation expectations have been significantly reduced. Meanwhile, Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, pointed out that the market is actually pricing only about a 25% probability of rate cuts, and that the implied path remains extremely conservative.

Overall, professional institutions have largely accepted the narrative framework of “high-rate normalization,” with differences mainly about how long high rates will last, when they will fall, and at what pace.

Deconstructing the Underlying Logic Behind the Fed’s “Inability to Cut Rates”

The core constraints conveyed by the policy statement

When examining the Fed’s March meeting statement, the following facts are clearly discernible:

First, inflation is still above target and improvements have stalled. The statement explicitly says that “inflation remains elevated to some extent,” and the summary of economic projections significantly raised the 2026 PCE inflation forecast to 2.7%, which is well above the 2% policy target.

Second, economic growth is steady, and there is no need to use rate cuts to prop it up. The statement describes the economic situation as “economic activity expanding at a solid pace,” and the upward revision to the GDP growth forecast further supports this judgment.

Third, geopolitical uncertainty has risen sharply. The statement added the phrase that “there is uncertainty about how developments in the Middle East will impact the U.S. economy,” and emphasized that “uncertainty about the economic outlook remains high.”

Structural reasons why the conditions for rate cuts have not been met

Taken together with Powell’s statements at the press conference and subsequent public remarks, the logical chain behind the Fed’s refusal to cut rates can be summarized as follows:

The rate cut threshold has been significantly raised. Powell clearly stated that policy interest rates are currently at a suitable position at the “upper end of the neutral range,” and without seeing sustained improvement in inflation, rate cuts are not under consideration.

Tariff-driven inflation has not yet faded. At the press conference, Powell broke down the components of inflation and pointed out that at that time, about 0.5 to 0.75 percentage points of roughly 3% core PCE came from tariff pass-through. The Fed is watching when this portion of inflation will come down and expects it at the earliest by mid-2026.

A second round of transmission from energy shocks still needs to be watched. Although the Fed is inclined to “ignore” short-term energy supply shocks, the prerequisite is that the public’s long-term inflation expectations remain stable. Once inflation expectations begin to become “unanchored,” the policy stance will be forced to shift in a more restrictive direction.

The room for a battle between market expectations and policy reality

The contest between the Fed and the market may have just begun. The Fed’s condition for rate cuts is to “see sustained improvement in inflation,” while markets tend to treat easing geopolitical risks as a leading signal for rate cuts. The difference in their perceptions may lead to significant volatility in future rate expectations.

The path of rate cuts may depend on the subsequent trajectory of oil prices. If Middle East tensions gradually ease and oil prices fall back to pre-war levels, inflation pressures will naturally ease, and the possibility of one rate cut within the year remains. If oil prices continue to stay elevated, the window for rate cuts may be pushed to 2027.

Industry Impact Analysis: How a High-Interest-Rate Environment Reshapes the Crypto Asset Market

Liquidity conditions remain tight

With the federal funds rate maintained in a relatively high range of 3.5% to 3.75%, it means global U.S. dollar liquidity conditions remain tight. In a high-rate environment, funds tend to move from high-risk assets to fixed-income assets, and the overall U.S. Treasury yield curve shifts upward—10-year Treasury yields have risen to about 4.31%.

For the crypto asset market, the direct effects of tighter liquidity show up in two ways: first, the opportunity cost for institutional capital allocating to crypto assets increases; second, the financing cost for leveraged funds remains at relatively high levels, suppressing the overall upside room for leverage growth. This structural constraint is difficult to change fundamentally before the Fed’s rate cut cycle is formally initiated.

Dynamic interplay between the inflation narrative and safe-haven demand

The year-over-year March CPI increase rebounded to 3.3%. The inflation expectations sparked by the surge in oil prices have had far-reaching effects on the pricing of various assets. On the one hand, inflation rising above expectations strengthens the Fed’s resolve to keep rates high, putting downward pressure on the valuations of risk assets; on the other hand, a persistent inflation environment also highlights the value-storing function of scarce assets.

Notably, after the Fed’s March 18 decision was released, U.S. stock markets’ three major indices accelerated their decline. The Dow Jones Industrial Average fell by more than 700 points that day, the U.S. dollar index strengthened, and gold continued sliding to below $4,900 per ounce. This suggests that market concerns about the combination of “high rates + geopolitical risk” have spread comprehensively across various asset classes.

Volatility opportunities created by market expectation switching

The sharp switching in rate cut expectations triggered by geopolitical uncertainty brings significant volatility opportunities to the market. The rapid shift from “zero rate cuts” to a 43% probability of rate cuts after the ceasefire directly affects the dollar’s strength and the level of risk appetite.

When rate cut expectations heat up, the dollar typically weakens, which tends to support crypto assets; conversely, it will be suppressive. With the Fed’s policy path still highly dependent on data, every release of major economic data—especially PCE and CPI data—may become a trigger point for the market to recalibrate pricing.

Allocation logic amid structural divergence

The continuation of a high-interest-rate environment will accelerate structural differentiation in the crypto asset market. Assets that lack real-world application scenarios and rely on liquidity premiums may continue to face pressure; meanwhile, projects with clear economic models and ongoing protocol revenue streams tend to have valuation logic that is less correlated with the interest rate environment, showing stronger resilience during high-rate cycles.

This trend of structural divergence is highly related to the Fed’s policy path: when rate cut expectations rise, capital tends to flow toward higher-beta risk assets; when rate cut expectations fade, investors favor asset categories with stronger cash-flow certainty and valuations that are less sensitive to interest rates.

Conclusion

The Fed’s decision to keep rates unchanged in March 2026 appears, on the surface, to be a routine action consistent with market expectations, but the policy dilemma behind it is unprecedented. After years of inflation staying above target, there has still been no fundamental improvement; the shadow of energy shocks persists; and the intensity and unpredictability of geopolitical risks are both at historic highs. The conditions for rate cuts are far from being met, and the risk of further rate hikes has not been fully eliminated. The prolonged high-rate environment is profoundly reshaping the fundamental framework for global asset pricing.

For participants in the crypto asset market, understanding the key to the Fed’s decision logic is not about guessing the exact timing of rate cuts, but about grasping the structural shifts that are taking place in the policy framework: until decisive progress is achieved in inflation control, “high-rate normalization” will remain the default setting for the macro environment. In this context, maintaining continuous tracking of key economic data and geopolitical developments, and prudently assessing how changes in liquidity conditions affect asset pricing, will be more important than ever.