FOMC Holds Overnight Rate Steady, Signals "Meeting-By-Meeting" Bias

Flash Update: US RATE MARKETS – THURSDAY MARCH 19, 2026

• UST yields and SOFR swap rates are materially higher this morning, as traders adjust rate cut expectations

• Yesterday, the FOMC held the benchmark rate steady and signaled they would move forward on a “meeting-by-meeting” basis

• The jump in rates began during Chairman Powell’s comments yesterday afternoon, as he signaled the Fed could be on the sidelines for the foreseeable future

• The new consensus Fed dot-plot and mostly upbeat SEP also contributed to higher interest rates

• The new consensus dot-plot shows only one 25 bp rate cut this year, and one next year

• The market reaction to the SCOTUS “tariff ruling” has been largely muted as traders await more details and information

• Traders will continue to track volatile equity markets, specifically the technology and AI sectors

• Market participants will continue to monitor developments with the DOJ investigation into the US Central Bank

• The war in the Middle East remains the primary focus for the rate markets

• The next FOMC rate decision is due Wednesday, April 29th at 2:00 PM

• Short-term SOFR swap rates are trading up ~2-6 bps this morning, depending on tenor

• Medium-term SOFR swap rates are up ~1-4 bps currently, depending on tenor

• Long-end SOFR swap rates are down ~1-2 bps this morning, depending on tenor

Good Morning – US Treasury yields and SOFR swap rates are materially higher this morning, as market participants face the reality that we may not see another rate cut this year. As such, SOFR swap rates are surging as traders remove rate cut expectations from the forward curve. Short-end rates are particularly vulnerable to changes in the Fed-outlook. Rates initially moved higher during Powell’s press conference, as it became clear that the Fed is in no hurry to cut rates – in fact, they may be done. The new consensus dot-plot also helped push rates higher. The new consensus dot-plot shows one possible 25 bp rate cut this year, and one next year. Traders had been holding out hope that we would see at least two 25 bp rate cuts this year.

I would note that rates have come down off of the highs of the day, which does tell me that the market is settling down some.

The market friction between potential higher inflation and potential damage to economic growth will continue to grow as long as the war rages on. A spike in energy prices continues to weigh on markets and drive short-term inflation forecasts higher. At the moment, inflation concerns are outpacing growth concerns, hence the higher rates. Yesterday, Powell said that rate hikes had been discussed at the meeting, but a rate “hike” was not anyone’s “base case” for the FOMC’s next rate move. Still, the mere mention of a rate hike was enough to spook the market and push Treasury yields higher.

Market participants will continue to nervously monitor the latest war developments. War developments and “headlines” will continue to be the primary market catalysts for the near term.The longer the war drags on and oil prices remain elevated, the greater the threat to global economic growth and inflation.

News the market is tracking includes:

• Geopolitical developments continue to weigh on market sentiment.The US/Iran “war” will likely dominate market sentiment this week. The end result of the US attack on Iran is difficult to forecast at this time. Currently, the major impacts thus far have been higher oil prices, higher rates, and a surge in geopolitical tensions.

• SCOTUS is also currently ruling on the legality of the President firing of the Fed’s Lisa Cook. There are some reports stating that SCOTUS is nearing a final decision on that case, which could have far reaching implications for the US Central Bank.

• The US Justice Department investigation into the US Central Bank and Chairman Powell will remain a key market focus moving forward.

• Market participants continue to closely track developments in the US equities markets. There is still a sharp focus on the performance of the growing AI sector. Market sentiment is likely to be impacted by “tech” earnings for the foreseeable future.

• The market continues to monitor US political developments. US political developments will remain a major focus for the market for the foreseeable future.

• Traders and investors continue to assess the market implications of the recent SCOTUS ruling on President Trump’s tariffs. Market participants await more data and information.

• Market participants are growing more and more concerned with the ongoing “partial” government shutdown. Traders are hoping the situation is resolved quickly – a full government shut-down would be extremely challenging to manage during a war.

SOFR Swap Rate Summary: The 1Y SOFR swap rate is trading up ~4-6 bps this morning. 2Y and 3Y SOFR swap rates are currently trading up ~4-6 bps. 5Y and 10Y SOFR swap rates are trading up ~1-4 bps on the day. The very back-end of the swap curve is currently trading down ~1-2 bps from yesterday’s closing levels.  

Please note: Market levels can change rapidly – rate cap premiums are subject to a dynamic market that can change frequently.

CHART 1:US RATES SNAPSHOT: 10:00 AM Eastern

*For SOFR Swap Rates & Change-On-Day (In Bps): Refer Two Far Right Columns (SOFR Swap Rates)

UST YIELDS | SWAP SPREADS | SOFR SWAP RATES

Source: Bloomberg, LLP | 10:00 AM NY Rates Snapshot

CHART 2 & 2A: SOFR SWAP RATES MATERIALLY HIGHER AS INFLATION FEARS MOUNT; FED SIGNALS SUSTAINED “WAIT-AND-SEE” MODE

SOFR swap rates are significantly higher this morning (actually, since yesterday afternoon), as traders unwind Fed rate cut expectations and grapple with the implications of the war in the Middle East. Chair Powell cited ongoing inflation concerns, but he was careful to point out that the “the implications of developments in the Middle East for the US economy are uncertain” and he steadfastly avoided making any predictions about the potential impact of the war. Bottom-line, the market heard “slim chance for rate cuts this year” and swap rates moved higher, particularly on the Fed-sensitive short-end. War-related inflation fears are already weighing heavily on markets, so that continues to keep upward pressure on swap rates.

Traders and market participants continue to anxiously monitor developments in the Middle East crisis – I still expect rates to remain asymmetrically biased higher as long as “oil fears” dominate the market.

Key Swap Rate Movement Since The War Began:The 2-year SOFR swap rate closed at 3.21% on Friday 2/27 – it is currently trading at ~3.65% (+44 bps). The 5-year SOFR swap rate closed at 3.22% on Friday 2/27 – it is currently trading at ~3.59% (+37 bps). The 10-year SOFR swap rates has experienced a similar move – it closed Friday 2/27 at 3.52% and is currently trading at ~3.795% (+27.5 bps).

CHART 2:Short-End SOFR Swap Rates – Prior 10 Days

Source: Bloomberg, LLP | 1Y (white), 2Y (blue) & 3Y (orange) SOFR SWAP RATES, PRIOR 10 DAYS

CHART 2A:Long-End SOFR Swap Rates – Prior 10 Days

Source: Bloomberg, LLP | 5Y (green), 7Y (purple) & 10Y (light blue) SOFR SWAP RATES, PRIOR 10 DAYS

CHART 3 & 3A: FOMC RECAP: FOMC HOLDS; SIGNALS, “NO PRESET COURSE”, “MEETING-BY-MEETING” POLICY BIAS

Yesterday, the FOMC held the overnight benchmark rate steady at 3.50% / 3.75% - the vote was 11-1 to hold. The Fed cited inflation concerns, but also pointed out that economic growth remains “solid” and consumer spending remains “resilient”. Chair Powell also noted that while “job gains remain low, the unemployment rate has been little changed”. The Chairman mentioned that the committee feels current monetary policy is “appropriate” and that they are currently “attentive” to both sides of the Fed’s dual mandate. Chair Powell also made it clear that if inflation continues to rise, or even sticks at these levels, we will not see a rate cut. The Fed is determined to bring inflation down to their 2.00% target level.

Powell signaled that the Fed will move forward with a “meeting-by-meeting” bias going forward, and he reiterated there is “no preset course” for monetary policy. Powell also said that many on the committee feel the current Fed Funds level is “on the high end of neutral”. That tells me the Fed generally believes the benchmark rate is close to neutral, which hints that they will be very careful before cutting rates again.

The Fed’s new economic projections were, in my opinion, fairly upbeat – that is another factor that is contributing to higher rates. Upbeat economic projections do not generally translate to a need for rate cuts. That said, Powell acknowledged that the war in the middle east is a huge wildcard for the market. I am not going to draw any firm conclusions yet about the path forward for monetary policy – there are simply too many wildcards at the moment and far too much uncertainty.

I do know this – the Fed is going to need a definitive reason to cut rates again. Market implied forward Fed Funds and forward SOFR rates have flattened out – right now, markets do not see much change the remainder of this year!

CHART 3:Current Market Implied SOFR and Fed Funds Futures – FOMC Dates

Source: Bloomberg, LLP | Market Implied SOFR and Fed Funds Futures – FOMC Dates

CHART 3A: Market Hopes Dim For A Fed Rate Cut This Year

Source: Bloomberg, LLP | SWAP IMPLIED FED RATE CUTS FOR 2026

RCA Product & Pricing Update:

Product Spotlight: What We Are Seeing In The Rates & Derivatives Markets

The market is again facing tremendous uncertainty surrounding the path forward for interest rates. Borrowers should be as nimble as possible in this market environment. Cap purchasers should onboard as quickly as possible – there is no cost to onboard. It is important to be in a position to take advantage of market opportunities quickly and efficiently.

Given the uncertainty that still remains about forward rates, many clients are grappling with when or if to extend. This is a difficult question – our advice has been to monitor the market closely and be on-boarded and ready to trade, should the market move in your favor. We also advise borrowers to check the market pricing for extensions, similar to how you purchased the original cap. Market pricing discovery is a key component to any cap transaction – new caps, extensions or terminations.

There is an increasing interest in exploring interest rate swaps as a possible hedge alternative. IR Swaps lock in a synthetic fixed rate and do not require an upfront premium. Unlike an interest rate cap, swaps are secured derivatives, so the counterparty selection process is more challenging with a swap. There are also additional variables that factor into the decision to pursue an interest rate swap, or to unwind an existing swap. We are also seeing a dramatic increase in swap termination advisory requests recently, as clients contemplate refinancings. Lower rates have sparked refinancing activity, which in some cases necessitates unwinding an existing swap. Please let us know if you would like to learn more about interest rate swaps, or swap terminations.

We are still seeing some residual demand for interest rate floor indications – to offset high loan floors or simply to benefit from declining variable rates. Borrowers who have “floors” embedded in their loans have been considering purchasing a separate, stand-alone interest rate floor to offset the loan floor.

Interest Rate Cap Hub: Pricing & Volatility Update for 3/19/2026

• Cap premiums are higher since the war began, due to a material increase in SOFR swap rates and higher rate volatility

• Rate volatility has ticked significantly since the onset of the Middle East conflict

• Current 1-Month Term SOFR = 3.67504% (Prior day: 3.67672%)

Pricing Matrix:1-Week Movement In 1-Month Term SOFR Cap Premiums

*Indications as of market open. Premium levels provided are indications only and subject to change.

Please contact us if you would like to discuss an upcoming rate cap or rate cap extension, explore ways to reduce or eliminate escrow deposits for replacement caps or learn more about interest rate Caps, Floors, Swaps or Swaptions. RCA can also assist you with the voluntary early termination of your cap or swap.

HedgeWithAnEdge-TheRCAEdge!

Disclaimer: The information provided in this communication is intended for discussion purposes only. Nothing presented in this communication should be taken as a recommendation or forecast. All market data shown is indicative only and subject to change depending on current market conditions. The information in this publication is confidential and is intended for the recipient only.