INSTANT VIEW-Fed holds rates steady as expected, calls inflation somewhat elevated

NEW YORK, March 18 (Reuters) - The Federal Reserve held its policy rate steady on Wednesday, as was widely expected, citing somewhat elevated inflation and giving little indication when it might next cut short-term borrowing costs. Fed officials' economic projections indicated they expect to cut rates once again this year, largely in line with the Wall Street estimate.

MARKET REACTION:

STOCKS: The S&P 500 .SPX was flat after the policy statement, leaving it down on the day by 0.5%.

BONDS: The yield on benchmark U.S. 10-year notes US10YT=RR was little changed at 4.21%.

FOREX: The dollar index =USD was up 0.2% to 98.80.

COMMENTS:

KARL SCHAMOTTA, CHIEF MARKET STRATEGIST, CORPAY, TORONTO:

"The Federal Reserve left interest rates unchanged and made relatively minor changes in its policy statement, suggesting that officials plan to follow long-standing monetary policy orthodoxy in 'looking through' the energy price shock now rolling across the global economy.

"The consistent tone, paired with a fresh set of projections showing lower growth, weaker employment and higher inflation than in December, marks the clearest signal yet that Chair Jay Powell's Fed sees higher energy prices playing a temporary but demand-destructive role in the US economy.

"With policymakers seemingly intent on resisting pressure to act in either direction, rate expectations are holding firm across the front end of the curve, reinforcing today’s advance in the dollar."

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN:

"The real action was in the Summary of Economic Projections. They’re only guessing about what will happen with oil prices, but inflation is projected to run 0.3 percentage points hotter without a material drag on growth. That could be optimistic on their part. It’s similar to how they overestimated the effect of tariffs on inflation and underestimated the growth drag. 2026 could be like the last two years where there’s a shock, they end up being surprised, and they cut in September."

GENNADIY GOLDBERG, HEAD OF US RATES STRATEGY, TD SECURITIES, NEW YORK:

“Yields are moving a little bit lower, I think just on relief that the dots for 2026 and 2027 didn't reflect fewer rate cuts, as some investors were worried that they would. The statement itself just mentions uncertainty in the Middle East and the uncertainty in that pass through to the U.S. economy.

“Otherwise, I think the Fed is effectively staying on hold, just waiting and watching to see how this affects the economy. I think markets are going to be looking for Powell's remarks at 2:30 for any sort of direction, although I doubt Powell wants to pound the table one way or the other just because of the worry that the Middle East conflict can weigh on both growth and push inflation higher at the same time. And that's something that's concerning to the Fed.”