The Federal Reserve held its benchmark interest rate unchanged at its March 17-18 meeting, a move that investors had widely anticipated given still-sticky inflation and a relatively stable job market.
But the real question for investors is what comes next — not just for interest rates, but for a broader economy that’s absorbing shocks to crucial energy markets in real time.
According to a new Fidelity Viewpoints newsletter, investors who hoped the Fed could offer certainty may have been disappointed.
Fed Chair Jerome Powell made it clear that policymakers are still parsing the implications of the Iran conflict and the recent swings in energy and labor data and that, for now, they face the same uncertainty as investors.
Here is more, according to Fidelity, on what investors learned from the March Fed meeting, plus the three big unknowns to watch that may shape the Fed’s next moves.
Investors had been expecting a “hold” decision at this meeting well before the Iran conflict.
Although the job market has continued to show sluggishness, which might tip the scales toward additional rate cuts, it has not shown signs of a sharp deterioration.
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Meanwhile, in other areas the economy has appeared to start 2026 on firm footing.
New manufacturing orders — a closely watched leading indicator — have picked up, and tax-related stimulus is beginning to reach consumers and businesses.
With inflation still sticky and above target, the data didn’t give the Fed a persuasive reason to resume cutting rates.
Although the Middle East conflict adds a new variable to the Fed’s balancing act, the added uncertainty has only strengthened the case for holding policy steady, says Andrew Garvey, lead monetary policy analyst on Fidelity’s Asset Allocation Research Team.
“From the Fed’s point of view, there was no strong reason to do anything right now,” he says. “Geopolitical developments have actually given them even more reason to pause, given the heightened uncertainty, and wait for more information.”
From here, the outlook for Fed policy becomes much more uncertain as the Fed faces new economic crosswinds on multiple fronts.
Here are the key unknowns about how the Iran conflict could impact the Fed’s mission and moves — even as a change in leadership for the central bank looms.
Federal Reserve Bank of New York via FRED® ·Federal Reserve Bank of New York via FRED®
With oil prices rising markedly since the start of the conflict, there’s little doubt that headline measures of inflation, like the Consumer Price Index (CPI) and Personal Consumption Expenditures Index (PCE), will show an impact once March data is released.
Yet as Garvey notes, the Fed pays closer attention to “core” inflation measures, which strip out energy and food prices (which tend to be highly volatile) and give a clearer read on underlying inflation trends.
That means policymakers may be less concerned with the immediate jump in prices at the pump, and more attentive to whether higher energy costs start filtering into the prices of goods and services across the economy as companies find their own energy costs rising.
Moreover, the key question for the Fed is not simply whether core inflation rises this month or next, but whether any increase represents a one-time price hike, or marks a longer-term change in the inflation trendline.
When consumers have to spend more on energy, they may eventually start to cut back elsewhere. This can hurt overall economic growth or in extreme cases even lead to a recession.
Also, the United States is now a net energy exporter, so increased energy production and capital expenditures could also provide some support to economic activity.
Yet another way energy prices can impact growth is through corporate profit margins, notes Aditi Balachandar, research analyst on Fidelity’s fixed income team.
If companies lack pricing power and are unable to pass rising costs on to consumers, their profit margins could begin to compress over time.
Eventually, this could begin to weigh on hiring and capital expenditure decisions, filtering into broader economic growth.
Any tightening in financial conditions could also negatively impact consumer spending.
Ultimately, any growth impact may depend on how high energy prices rise and how long they stay elevated.
There is only one more Fed meeting before Powell’s term as Chair expires on May 15. (However, if the Senate has not confirmed a successor by that time, he could continue to serve for a period as acting Chair.)
While many investors expect nominee Kevin Warsh to take a somewhat more dovish approach if confirmed, a new Fed Chair may have to spend some time building consensus and credibility with the other Federal Open Market Committee members and understanding the full range of views around the table.
That adjustment period could itself introduce a degree of policy uncertainty at a moment when the economic outlook is already in flux.
The Fed released updated economic projections, or its “dot plot,” at its March meeting, which show Fed officials’ best estimates for where interest rates and the economy may be heading next.
These showed that the median of members expects one 25 basis-point cut over the course of 2026.
Related: Fed split holds as Iran war scrambles rate path
Based on median projections, Fed officials are also now expecting slightly higher inflation and slightly higher economic growth for calendar 2026 than they were previously.
The projections showed no change to members’ median expectation for unemployment in 2026.
Members also reported somewhat more uncertainty around their economic projections than at the December meeting.
As the Fed waits for clearer evidence, investors can do the same.
A few indicators may offer the earliest clues about how the current energy situation and broader uncertainties are feeding into the economy — which may influence where the Fed goes from here:
March inflation trends. Headline CPI and PCE will capture the immediate effect of higher energy prices, but the more important signal might be whether core inflation shows an impact.
Business sentiment and new-orders surveys. Garvey notes that surveys of small-business hiring and investment intentions, plus new manufacturing orders, may provide early indicators of broader impacts on economic growth.
Energy prices — and how long they stay elevated. Single-day or intra-day price spikes may be unlikely to change the course of the broader economy. A sustained period of higher prices would carry more meaningful implications for both inflation and growth.
For many investors, the most important move right now is simply not to overreact to a volatile moment, and to stay focused on fundamentals rather than headlines.
