Fed Holds at 3.64% for Third Straight Month as Inflation Nears Target
The federal funds rate has been unchanged since January as CPI inflation decelerates to 2.43% year-over-year. The easing cycle appears paused, not ended.
The Rate
| Month | Fed Funds Rate | Change |
|---|---|---|
| Mar 2026 | 3.64% | Unchanged |
| Feb 2026 | 3.64% | Unchanged |
| Jan 2026 | 3.64% | Unchanged |
| Dec 2025 | 3.72% | -8bp |
| Nov 2025 | 3.88% | -16bp |
| Oct 2025 | 4.09% | -21bp |
What Happened
The Federal Reserve has maintained the federal funds rate at 3.64% for three consecutive months, following an easing cycle that brought the rate down 45 basis points from 4.09% in October 2025. The December cut appears to have been the last in this cycle, at least for now.
Inflation Picture
| Month | CPI YoY |
|---|---|
| Feb 2026 | 2.43% |
| Jan 2026 | 2.39% |
| Dec 2025 | 2.65% |
| Nov 2025 | 2.70% |
| Sep 2025 | 3.02% |
Consumer price inflation has decelerated from 3.02% year-over-year in September 2025 to 2.43% in February 2026. The trend is clearly downward, but the pace of improvement has slowed -- January to February was essentially flat (2.39% to 2.43%).
The Fed's 2% target is within reach but the last mile is proving sticky.
The GDP Disconnect
While the labor market churns, the broader economy has been strong:
| Quarter | GDP Growth (Annualized) |
|---|---|
| Q4 2025 | 4.50% |
| Q3 2025 | 8.28% |
| Q2 2025 | 6.04% |
| Q1 2025 | 2.94% |
GDP growth averaged over 5% annualized in 2025, with Q3's 8.28% print likely reflecting inventory and trade front-running effects. The disconnect between strong GDP and volatile employment is unusual and complicates the Fed's calculus.
What It Means
The Fed is in a classic late-cycle bind. Inflation is approaching but not at target. Growth is strong. Employment is volatile but not recessionary. Cutting risks reigniting inflation; holding risks overtightening if the labor market deteriorates further.
The market implied path suggests the next move is more likely a cut than a hike, but the timing is uncertain. The Q1 2026 GDP advance estimate, due in late April, will be the next major data point.