As part of our initiative to bring timely market information to California public agencies, CalTRUST Chief Executive Officer Laura Labanieh Kitson had a brief Q&A with State Street Investment Management’s Vice President, Portfolio Strategist Will Goldthwait to reflect on this week’s Federal Reserve meeting:
Laura: What did the Fed decide, and why?
Will: The Fed delivered a classic “hawkish hold” – in plain English, they left interest rates unchanged at 3.50–3.75%. This was widely expected. After cutting rates three times in late 2025 to cushion a softening economy, policymakers have now hit pause. Why? Because they’re stuck between a cooling U.S. economy and a renewed inflation threat from surging oil prices amid the Middle East conflict. Recent data paints a mixed picture: inflation is down from its 2022 highs but still stubbornly above the 2% target, and the labor market is losing steam. In fact, February’s jobs report was downright ugly – payrolls fell by 92,000 and unemployment jumped to 4.4%, the first net job loss in years. Normally, a shock like that would have the Fed rushing to cut rates. But with an oil-price storm now brewing, the Fed isn’t taking any chances on inflation. By holding rates steady and striking a wary tone, the FOMC essentially said: “We see the slowdown, but we can’t risk an inflation flare-up.”
Laura: How is the war in Iran affecting the economic outlook?
Will: It’s complicating things a lot – because it’s sending oil on a wild ride. The U.S.–Israel vs. Iran conflict that erupted on Feb 28 has choked off the Strait of Hormuz, a key oil artery, and jolted energy markets. Oil prices initially spiked as high as $120 a barrel before settling in a volatile $80–$120 range. That’s roughly a 40% jump from pre-war levels, and it’s exactly the kind of “supply shock” inflation that gives central bankers insomnia. Higher oil prices filter quickly into higher gasoline and energy costs for households and businesses, which can push up headline inflation in the coming months. In fact, economists warn that if oil hangs around $100, U.S. inflation could shoot back above 3.5% by this summer – a sort of inflationary jump-scare just when the Fed thought the beast was finally tamed. The Fed’s typical playbook with oil shocks is to “look through” temporary energy spikes, but this war is testing their resolve. As one strategist wryly noted, supply-driven inflation is the Fed’s least-favorite kind – it’s not only painful, it also ignores Fed policy like a cat ignores its owner. So far, the Fed’s response is to hunker down: signal vigilance, promise to react if needed, but avoid knee-jerk rate moves. They know they can’t pump oil or broker peace; the best they can do is avoid pouring monetary gasoline on the fire.
Laura: What did the new Summary of Economic Projections show?
Will: In many ways, the Fed’s new “dot plot” and forecasts did the quiet heavy lifting this meeting. The projections for 2026 were adjusted to reflect a more challenging environment: moderate growth, higher unemployment, and stickier inflation than previously envisioned. In practice, this means Fed officials marked down their GDP outlook a bit, nudged the expected unemployment rate up, and marked inflation updue to the oil shock. Crucially, they also signaled interest rates staying elevated for longer, with the median policy rate for end-2026 showing one 25bps cut. In other words, the Fed isn’t planning to ride to the rescue with rate cuts at the first sign of economic trouble. They are more worried about inflation winning a rematch. Fed officials see more inflation and a tougher road ahead, and they’re less inclined to cut rates in 2026 than they were before.
Laura: What’s the deal with Jeanine Pirro’s case against Fed Chair Powell?
Will: Ah, the other drama – call it “Law & Order: Central Bank Unit.” In an unprecedented twist, U.S. Attorney Jeanine Pirro (yes, the former TV judge) launched a criminal probe into Jerome Powell’s testimony about the Fed’s $2.5 billion building renovation, widely seen as politically motivated. The Justice Department issued subpoenas to the Fed – essentially attempting to pull records and testimony from Powell – but a federal judge just slammed the brakes on that. U.S. District Judge James Boasberg quashed those subpoenas, delivering a scathing rebuke to the DOJ. “Did prosecutors issue those subpoenas for a proper purpose? The Court finds that they did not,” Boasberg wrote in his ruling. He pointed to a “mountain of evidence” that the subpoenas’ sole purpose was to harass and pressure Powell into lowering rates or quitting. On the flip side, the judge noted, the government had provided “essentially zero evidence” that Powell committed any crime – apart from, presumably, the “crime” of displeasing the president. In Judge Boasberg’s words, the DOJ’s justifications were “so thin and unsubstantiated” that he had to conclude the subpoenas were “pretextual”. In non-legal terms: it was a fishing expedition, and a pretty smelly one at that.
Importantly, the case wasn’t dismissed outright – but it’s on hold. Pirro’s office vowed to appeal the ruling and complained that the judge “neutered” the grand jury’s investigation. For now, though, Powell doesn’t have to comply with those subpoenas.
Implications for the Fed? In a direct sense, none for policy – the Fed isn’t going to cut rates just because a DOJ probe wanted to rattle the Chair. If anything, this saga has only steeled Powell’s commitment to Fed independence. Powell himself said the investigation was about whether the Fed would set policy “based on evidence and economic conditions – or… be directed by political pressure”. Don’t expect him to suddenly start capitulating to politics; if anything, the FOMC will be even more careful to show it won’t be bullied. In practice, that means decisions like today’s – no premature rate cuts to mollify critics.
Laura: Bottom line – how should we read this meeting?
Will: The Fed is holding rates steady for now, but with a clearly hawkish undercurrent. The central message is that inflation is still Public Enemy #1, and they’re willing to tolerate some economic weakness to defeat it. The war-driven oil shock only stiffens their resolve – it’s a reminder that unpleasant surprises can and do happen, and the Fed wants enough “ammo” (rate firepower) to respond if inflation accelerates. The hoped-for rate cuts later in 2026 may be off the table unless inflation genuinely cools. In the meantime, the Fed will be winging it meeting-by-meeting, praying for oil prices (and tempers in the Middle East) to simmer down. As investors, we’re left with a Fed that’s trying to look relaxed – but is secretly gripping the arms of its chair (Powell’s, in fact) rather tightly.
Source: Federal Reserve, March 18, 2026