Bloomberg Surveillance: The Fed Decides 3/18/2026
Speakers
Summary
- The FOMC left the policy rate unchanged, with the median 'dot' still projecting one rate cut in 2026, while revising 2026 PCE inflation forecasts up to 2.7% (headline and core) from 2.4% and 2.5% previously.
- Chair Powell emphasized extreme uncertainty from the Middle East conflict, stating it is "too soon to know" the scope, duration, and economic impact of the oil price shock, and that the Fed will "wait and see."
- Powell explicitly stated he will serve as Chair pro tem if his successor (Kevin Warsh) is not confirmed by May 15, will not leave the Board until the DOJ investigation is "well and truly over," and has not decided whether to stay as a Governor afterwards.
- The press conference was interpreted as hawkish, particularly after Powell pushed back on the idea that employment risk was greater than inflation risk, leading to a selloff in equities and a flattening yield curve.
- Subadra Rajappa argued that with the Fed on hold, investors will flock to the belly of the Treasury curve (5-10 year), as it offers the best risk/reward if future growth slows and prompts more cuts.
- Bob Michele highlighted structural risk in private credit, noting the asset class hasn't been through a recessionary "shakeout" and that redemptions are testing the system, though it's functioning for now.
- Diane Swonk criticized the Fed's "dovish pause," arguing that rate cuts cannot solve structural labor market issues and that persistent above-target inflation, exacerbated by energy shocks, raises stagflation concerns.
- Torsten Slok inferred that Powell remaining as Chair pro tem introduces a more hawkish bias to the committee than if a new, potentially more dovish chair were installed immediately.
- Jeffrey Rosenberg noted the market's hawkish repricing reflects reduced expectations for Fed liquidity support, which has been a key pillar for risk assets.
- Multiple speakers (Powell, Michele, Swonk) underscored that the Fed is not the primary circuit breaker for the current supply shock, with Powell acknowledging the central bank cannot "print barrels" of oil.
Trade Ideas
Subadra Rajappa stated bonds are "still the place where you want to put your money to work," and that because the Fed is likely to stay on hold, investors will "flock to the belly of the curve." She explicitly concluded, "the belly is going to continue to outperform." A prolonged Fed hold anchors front-end yields, while rising risks to future growth (which could force more cuts later) increase the relative attractiveness of intermediate-term Treasuries (the belly). LONG the belly of the US Treasury curve (e.g., 5-10 year maturities) as demand is expected to concentrate there, leading to price outperformance relative to both shorter and longer maturities. The Fed surprises with a hike or growth proves resilient, reducing expectations for future cuts and causing the belly to underperform.
Up Next
This Bloomberg Markets video, published March 18, 2026, features Subadra Rajappa discussing IEF. 1 trade idea extracted by AI with direction and confidence scoring.
Speakers: Subadra Rajappa · Tickers: IEF