US Economy: Weekly Commentary – March 23, 2026

US Market Review

Treasury yields rose, led by short-term rates, while equities declined broadly. The dollar weakened, oil fell after supply expectations improved, and both gold and Bitcoin posted losses.

US Treasury yields moved higher over the week, with the increase led by short-term maturities, while the long end continued to edge upward, bringing the 30-year yield closer to the 5% threshold. The bearish flattening of the US yield curve persisted, driven primarily by two factors. First, market expectations for a Federal Reserve rate cut have been pushed further out, now shifting from 2026 into 2027. Second, although inflation concerns are exerting upward pressure on longer-dated yields, this effect is being partially offset by rising concerns about economic growth.

US equity markets ended the week in negative territory. Micro-cap stocks declined by 2.70%, small-cap stocks by 1.80%, and large-cap stocks by 1.90%. The “Magnificent 7” index also registered a loss of 2.65%. At the sector level, performance was broadly negative, with only energy (+2.86%) and financial services (+0.40%) posting gains.

In foreign exchange markets, the US dollar depreciated by 1.34% against the euro. WTI crude oil declined by 0.49%, as an initial price surge, triggered by geopolitical tensions involving Iran, Qatar, and Saudi Arabia and concerns over potential supply disruptions, was quickly reversed. Market sentiment shifted after indications that the United States could ease sanctions on Iranian oil exports and potentially release additional crude from strategic reserves, alleviating fears of a sustained supply shortfall. Gold prices fell by 3.34%, and Bitcoin declined by 1.40%.

US Market Views Synopsis

The Fed held rates at 3.50%-3.75%, citing energy risks and slowing labour; Powell pledges continuity, with cuts projected for 2026–27.

The Federal Reserve kept its benchmark rate at 3.50%-3.75%, citing Middle East energy uncertainties and a cooling labour market. The 11-1 vote saw Governor Stephen Miran dissenting for a 25bp cut. Chair Jerome Powell stressed energy shocks are temporary and pledged leadership continuity. Rate cuts are projected for 2026–27, with GDP growth slightly revised up through 2028. Core inflation is expected to be near 2.7% in 2026, easing to 2% by 2028. Markets remain sensitive to energy prices and geopolitics.

Interest Rate Decision

The Federal Reserve held rates at 3.50%-3.75%. It cited Middle East energy uncertainties and a cooling labour market. Rate cuts are projected in 2026–27. Powell pledges leadership continuity.

The Federal Reserve voted 11-1 to maintain its benchmark federal funds rate in the 3.50%-3.75% target range, with Governor Stephen Miran dissenting in favour of a 25-basis-point reduction. In its statement, the Fed highlighted ongoing uncertainty surrounding the U.S. economic outlook, particularly the potential impact of geopolitical developments in the Middle East on energy prices and inflation. While policymakers left rates unchanged, they maintained projections for a 25bp reduction in both 2026 and 2027, indicating that rate cuts remain “more likely than not” over the medium term. Chair Jerome Powell emphasised that recent energy price shocks are expected to be transitory and unlikely to trigger persistent inflation, while economic activity continues to expand at a solid pace despite moderating labour market conditions. Powell also confirmed that he does not intend to leave the Fed until the Department of Justice investigation concludes, underscoring his commitment to providing continuity in leadership amid heightened uncertainty.

Updated Fed projections show modest upward revisions to GDP growth through 2028, reflecting confidence in productivity gains, including those associated with technological and AI-driven investment. Core inflation is expected to be slightly higher in the near term, with the PCE deflator projected at 2.7% in Q4 2026 and 2.2% in Q4 2027, before stabilising at 2% in 2028. Labour market indicators suggest cooling momentum, with February non-farm payrolls declining by 92,000 and prior months revised downward by 69,000 jobs, highlighting slower wage growth and reduced inflationary pressures from employment. While the possibility of future rate hikes was discussed, the committee does not view this as the baseline scenario. The Fed’s guidance leaves markets largely dependent on energy prices and geopolitical developments, with Powell noting it is too early to gauge the full economic impact of the Middle East conflict, which is expected to be a temporary supply shock rather than a persistent inflation driver. The central bank’s approach reflects a strategy of maintaining flexibility while balancing its dual mandate of price stability and maximum employment.

We expect the Fed to keep rates on hold through the first half of the year. While we do not anticipate rate hikes, higher inflation pressures driven by the energy shock are likely to persist, with rate cuts deferred to late 2026.