What to Expect on March 17-18

The Federal Reserve is preparing for its most complex meeting in years. On March 17-18, 2026, the Federal Open Market Committee (FOMC) will decide the fate of interest rates currently held at the 3.5%-3.75% target range.

Normally, the decision is between cutting or holding. But this time, some analysts at Morningstar have raised a question that was previously unthinkable: could the Fed actually raise rates in 2026?

Three Storms at Once

The Fed faces three simultaneous challenges not seen together since the 1970s:

1. The Oil Shock from the Iran War

Brent crude surged 19% in a single week, exceeding $82 per barrel. Every 10% increase in oil prices adds roughly 0.3-0.5 percentage points to inflation within 3-6 months. If the crisis continues, inflation that was trending downward will reverse course — exactly what the Fed does not want.

2. Tariff-Driven Inflation from Trump’s Trade War

The blanket 10% tariff on all imports means higher prices for imported goods. The Tax Foundation estimates the burden at an additional $1,500 per American household. This is “imported” inflation stacked on top of oil inflation — a toxic combination for monetary policy.

3. Economic Slowdown

Meanwhile, the trade war and geopolitical tensions are slowing economic growth. Consumer spending is declining and business confidence is falling. The economy needs stimulus (rate cuts) — but inflation prevents it.

This impossible equation is what economists call “stagflation” — and it is the worst-case scenario for any central bank.

Division Within the Fed

The January 2026 FOMC minutes revealed a sharp split among committee members:

• The hold camp: Argues inflation has not fallen enough and geopolitical risks increase uncertainty. Better to wait and take no action
• The cut camp: Warns that delaying cuts further will choke the economy. Economic data — especially the labor market — justifies a quarter-point reduction
• The hawkish minority: Some voices at Morningstar and investment banks float the scenario of a rate hike if inflation accelerates sharply

The January decision was a hold by majority — but with a split vote for the first time since the cutting cycle began. This signals deep disagreement about the direction.

Market Expectations: What CME FedWatch Shows

The CME Group’s FedWatch tool — the most widely followed indicator of rate expectations — shows:

• Probability of hold in March: Over 85%
• Probability of 25 bps cut: Below 12%
• Probability of hike: Below 3%

Bankrate projects three additional cuts totaling 0.75 percentage points in 2026 — but likely delayed until the second half of the year.

How the Fed Decision Affects the Middle East

Dollar-Pegged Gulf Currencies

Six Gulf currencies are pegged to the US dollar: the Saudi riyal, UAE dirham, Bahraini dinar, Qatari riyal, and Omani rial (the Kuwaiti dinar is pegged to a currency basket). This means:

• If the Fed holds: Status quo continues — Gulf interest rates stay elevated, borrowing remains expensive, but currencies are stable
• If the Fed cuts: Gulf central banks will follow with matching cuts — cheaper financing for businesses and individuals, a boost to real estate markets
• If the Fed hikes: A catastrophic scenario — rising borrowing costs in a region that needs massive financing for Vision 2030 and infrastructure projects

Gulf Real Estate Markets

High interest rates slow the mortgage market. In Dubai and Riyadh — the region’s most active property markets — every 0.25% rate cut visibly stimulates demand. Delayed cuts mean continued slowdown.

Gulf Stock Markets

GCC stock indices are directly affected by Fed decisions. Holding rates with rising oil prices is relatively positive. But any signal of a rate hike would pressure markets heavily.

US Mortgage Rates

The 30-year mortgage rate has recently declined — Bankrate notes a decrease in early March. However:

• If the Fed holds and signals inflation concerns, mortgage rates could rise again
• If the Fed signals future cuts, rates will continue declining
• The language of the Fed statement and the chair’s remarks will matter more than the decision itself

What Investors Should Watch

The decision itself (a hold is near-certain) is less important than these signals:

• Economic projections (Dot Plot): Do Fed members still project three cuts in 2026? Any reduction would be negative for markets
• Inflation language: Does the Fed describe oil-driven inflation as “transitory” or a “growing concern”?
• Press conference: Chair Powell’s remarks will move markets more than the official statement
• Dissent count: If more members dissent, it signals a directional shift

Analysis: Why This Meeting Is Pivotal

This is not a routine meeting. The Fed faces an equation it has not seen in decades:

• A war driving up energy prices
• Tariffs driving up goods prices
• An economy slowing and needing stimulus
• Inflation rising and requiring tightening

There is no right answer. Every move is a trade-off: fighting inflation at the expense of growth, or supporting growth at the expense of price stability.

This is precisely what makes the March 2026 meeting the most closely watched in recent years — not because the decision will surprise, but because the accompanying signals will determine the direction of markets for months to come.

FAQ

When will the Fed cut rates?

Current consensus points to the second half of 2026 — likely June or September. But this depends on oil-driven inflation subsiding and tariff impacts becoming clearer.

Should I wait to buy property?

If you are in the US or the Gulf, current mortgage rates may be better than what lies ahead if inflation escalates. But if the Fed cuts in the second half, rates will improve. The decision depends on your financial situation more than perfect timing.

How does this affect the dollar against local currencies?

Holding rates amid rising uncertainty supports the dollar as a safe haven. The Turkish lira and Egyptian pound (not dollar-pegged) may face pressure. Dollar-pegged Gulf currencies remain stable by design.