As widely expected, the US Federal Reserve (Fed) maintained the Federal Funds Target Rate (FFR) at 3.50%-3.75% at the second Federal Open Market Committee (FOMC) meeting this year from March 17-18 with an 11-1 vote.

Key points

•  Fed Chair Jerome Powell highlighted uncertainty, pointing to the inflationary impact of the US-Israel conflict with Iran.
• The Fed raised its near-term expectations for inflation, reflecting higher oil prices and their second-round effects brought about by the conflict in the Middle East.
• The Fed dot plot remains unchanged from the December Summary of Economic Projections (SEP), implying a single 25-basis-point (bp) FFR reduction this year.

However, the range of individual projections tell a different story as Fed officials now expect either a single 25-bp rate cut or no rate cuts at all for the year.

What now?

• Metrobank projects a 25-bp reduction in the Fed Funds Rate (FFR) by year end, bringing the FFR to 3.50% (upper bound) by end-2026. Meanwhile, we expect the BSP to deliver a cumulative 50 bps worth of hikes this year to uphold price stability, bringing the target Reverse Repurchase (RRP) rate to 4.75% by year-end.
• Although the projected policy rate trajectories will widen the interest rate differential (IRD) to 125 bps from 75 bps last year and provide some support to the peso, currency dynamics will likely be driven by the global risk-off sentiment and movements in global oil prices.
• It may be wise to track opportunities to buy dollars, given our expectations for the dollar-peso spot rate to tick higher as the Fed shifts toward a less dovish monetary policy path, and safe haven demand continues to fuel dollar strength.
• Meanwhile, there may be an opportunity to buy bonds at the shorter end of the yield curve, or shorter dated bonds, as peso outflows and expectations of higher inflation drive steepening.

(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.)   

March 2026 US Fed Report

Fed to cut just once

Policy rate projections for the US Fed remain the same, while the BSP sees hikes

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