ING’s Benjamin Schroeder expects the Federal Reserve to keep interest rates unchanged at the March FOMC meeting. Higher oil prices and elevated inflation expectations are described as limiting the case for rate cuts. Markets are positioned for no cut at this meeting, with the first reduction only fully priced by year-end. Markets also see growing chances of a cut starting in the summer.

Fed Holds Rates

Attention is expected on the Fed’s updated forecasts, including the Dot Plot of members’ rate expectations. In December, the Fed projected one rate cut in 2026 and a further 25bp cut in 2027. ING’s economists expect slightly lower growth forecasts and higher inflation projections. They also expect the Fed to shift the 2026 rate cut projection to 2027. The meeting may also cover balance sheet plans, as the temporary monthly US$40bn pace of reserve management purchases is expected to be reduced in April. The article notes a net US$130bn balance sheet expansion since mid-December and links it to the Fed funds effective rate. With the Federal Reserve meeting tonight, we expect rates to remain unchanged due to persistent inflation and rising energy costs. Recent data backs this up, with the February Consumer Price Index showing an unwelcome increase to 3.4%, interrupting the cooling trend we saw in late 2025. This sticky inflation gives the Fed very little room to consider easing policy at this moment. The bond market is already reflecting this reality, with the 10-year Treasury yield climbing back to 4.5%. This combination of higher borrowing costs and persistent inflation is not an environment that encourages rate cuts. Consequently, market pricing shows virtually no chance of a cut today, with the first full cut not anticipated until the end of the year.

Trading Implications

For derivative traders, this hawkish sentiment suggests positioning for yields to stay elevated in the short term. Selling short-dated puts on Treasury futures could be a viable strategy to earn premium, as a rate hold is widely expected. This trade benefits from the view that the Fed will not deliver a surprise dovish pivot. Looking further out, the focus will be on the Fed’s new forecasts, where we expect the timeline for rate cuts to be delayed. This situation feels very similar to the sentiment shift we witnessed back in 2024, when markets had to rapidly scale back their expectations for Fed easing. Calendar spreads in SOFR futures, which bet on a steeper yield curve over time, could be used to position for this delay. Given the uncertain environment, Fed Chair Powell will likely stress that the central bank has little conviction in its own long-term forecasts. This signals that volatility will remain a key theme. The MOVE Index, a measure of bond market volatility, has already risen over 15% since its lows last year, and strategies like buying straddles on bond ETFs could protect against sharp moves following future data releases. The recent surge in WTI crude oil to over $90 a barrel is a primary driver of these inflation fears. This energy price shock directly supports the case for a more cautious, “higher for longer” stance from the Fed. Traders should watch this space, as further gains in energy could be hedged with call options on major energy sector ETFs. Create your live VT Markets account and start trading now.

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