March 2026 Market Recap
1) Federal Reserve: March brought a hold, but the tone grew more conditional
At its March 17–18 meeting, the Federal Reserve left the federal funds target range unchanged at 3.50% to 3.75%. The statement said economic activity had been expanding at a solid pace, job gains had remained low, inflation was still somewhat elevated, and uncertainty around the outlook remained elevated. The Fed also explicitly noted that developments in the Middle East created added uncertainty for the U.S. economy. Notably, one FOMC member dissented in favor of a 25 basis point cut, which showed that even without action, the internal debate had become more active.
In Chair Powell’s press conference, the Fed’s updated projections added more texture. The median participant projected real GDP growth of 2.4% in 2026, an unemployment rate of 4.4% at year-end, total PCE inflation of 2.7% this year, and a year-end fed funds rate of 3.4%, unchanged from December. That combination mattered: the Fed was still signaling some eventual easing, but not because inflation was fully solved. Rather, it was balancing still-elevated inflation against a labor market that had cooled but not cracked.
2) Inflation: the CPI message was decent, but the PCE picture stayed less comfortable
The main inflation release during March was February CPI, published on March 11. Headline CPI rose 0.3% month over month and 2.4% year over year, while core CPI rose 0.2% for the month and 2.5% over the prior year. Shelter increased 0.2% in February and remained up 3.0% year over year, while energy rose 0.6% for the month after falling in January. Services less energy services rose 0.3% in February, which kept the underlying services inflation discussion alive even as the overall year-over-year numbers looked relatively contained.
March also ended with an unusual information gap. BEA had pushed the official February Personal Income and Outlays release, including February PCE inflation, to April 9 because of shutdown-related scheduling changes. The most recent official PCE release available during March was therefore January, which showed headline PCE inflation at 2.8% year over year and core PCE at 3.1%. Powell also said on March 18 that estimates based on CPI and other data indicated February PCE inflation was about 2.8%, with core PCE around 3.0%. In practice, this meant March investors were working with a softer CPI backdrop but a still-firmer PCE framework than the headline CPI alone suggested.
3) Labor and growth: weaker payrolls and a softer GDP revision made the economy look less clean
The February employment report, released on March 6, showed nonfarm payrolls edging down by 92,000, while the unemployment rate held at 4.4%. The weakness was concentrated in health care, where strike activity mattered, and in information and federal government employment, both of which continued to trend lower. Average hourly earnings still rose 0.4% in the month and 3.8% over the prior year, so the report was soft, but not recessionary.
Growth data in March also leaned cooler. BEA’s second estimate for fourth-quarter 2025 GDP, released March 13, revised annualized growth down to 0.7% from the 1.4% advance estimate. Real final sales to private domestic purchasers rose 1.9%, while the price index for gross domestic purchases increased 3.8%. BEA also estimated that the reduction in federal labor services during the fall 2025 shutdown subtracted about 1.0 percentage point from fourth-quarter real GDP growth. That made the underlying message more nuanced: the economy had slowed more than first reported, but part of that weakness still reflected temporary government-disruption effects rather than a clean collapse in private demand.
4) Rates: March pushed market yields back up and challenged easy-cut expectations
Treasury yields rose materially over the course of March. On February 27, the 2-year Treasury yield was 3.38% and the 10-year was 3.97%; by March 31, those yields had risen to 3.79% and 4.30%, respectively. That move suggested the market became less comfortable with the idea of quick or aggressive Fed easing, especially as inflation remained sticky enough and geopolitical risk kept energy and inflation expectations in focus.
5) Early read on March activity: growth held up, but the inflation signal worsened
The first major reads on March activity came in early April from ISM. Manufacturing PMI rose to 52.7 in March from 52.4 in February, while Services PMI remained solid at 54.0. On the surface, that suggested the economy still had forward momentum. But the internals mattered more. Manufacturing prices jumped to 78.3, the highest since June 2022, while the manufacturing employment index remained below 50 at 48.7. In services, new orders were strong at 60.6, but the employment index fell to 45.2. That combination pointed to an economy that was still expanding, but with more inflation pressure and less labor-market breadth underneath the surface.
What mattered most coming out of March
March complicated the “clean soft landing” narrative. The Fed stayed on hold, but its language underscored elevated uncertainty. Inflation data were good enough to avoid panic, but not good enough to declare victory. The labor market looked softer in the February payroll report, and GDP was revised down meaningfully. At the same time, survey data suggested real activity was still expanding, while price pressures in manufacturing were picking up again. Put simply, March left investors with a more difficult mix: decent growth, still-sticky inflation, and less confidence that rate cuts would arrive quickly or smoothly.
Disclosure
This commentary is provided for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security. Views are as of the end of March 2026 and may change as new information becomes available.