Fed's Powell Signals Persistent Inflation, Triggering Market Sell-Off and Bitcoin Decline

Author: Shenchao TechFlow

On Wednesday, the Federal Reserve held interest rates steady at the 3.5%-3.75% range as expected, with the dot plot maintaining forecasts for one rate cut in 2026 and another in 2027—all of which were anticipated, resulting in minimal market movement.

But Powell made a statement at the press conference that completely ignited the selling spree.

“We expect to make progress on inflation, but not as much as we would like,” Powell said at the press conference.

Major stock indices then fell to their daily lows. The Dow Jones Industrial Average dropped more than 600 points in a single day, a 1.3% decline, while the S&P 500 and Nasdaq Composite both fell 0.9%.

This was the market’s answer on March 18: not whether the Fed would hold rates steady (which was already certain), but how Powell defined “what’s next.” The answer: inflation proved more persistent than expected, and rate cuts are farther away than anticipated.

Dot plot's "hawkish details": Seven committee members expect zero rate cuts in 2026.

Among the 19 FOMC participants, seven indicated they expect interest rates to remain unchanged this year, up by one from the previous update in December. The most significant change was an increase in inflation expectations for 2026, with both core PCE and overall PCE projected at 2.7%, still above the Fed’s 2% target.

Although forecasts for the coming years show considerable dispersion, the median outlook is for one more rate cut by 2027, after which the federal funds rate will stabilize around 3.1% in the long term.

Powell declined to use the term "stagflation" but acknowledged that the dual mandate is under tension.

Powell pushed back on the notion that the U.S. economy is experiencing "stagflation"—a bleak combination of rising prices, sluggish economic growth, and high unemployment. While he acknowledged that the Fed’s dual mandate of price stability and a strong labor market is under tension, he stated, "That’s not the situation we’re in."

When I use the term "stagflation," I always point out that it was a term from the 1970s, when unemployment was in double digits, inflation was very high, and the pain index was extremely elevated. That’s not the case today. Our actual unemployment rate is very close to its long-term normal level, and inflation is only one percentage point above (the Fed’s target)... I’d reserve the term "stagflation" for more severe situations.

But the market isn’t buying it. Powell said oil price shocks could weigh on the U.S. economy: "The net effect of oil price shocks remains downward pressure on spending and employment, along with upward pressure on inflation."

This is the definition of "stagflation," regardless of how Powell refuses to use the term.

Powell touched on political matters during the press conference, stating, "I have no intention of leaving the Board until the investigation is completely and thoroughly concluded," and that he would serve as acting chair if Kevin Warsh’s nomination were delayed. He added that he has not yet decided whether to remain a Fed governor once the issue is resolved.

Powell’s term as a governor expires in early 2028. This means that even if Trump appoints Warsh as chair, Powell can still vote on the FOMC and continue to influence monetary policy.

As of March 12, Iran has carried out 21 confirmed attacks on merchant vessels. Warnings and subsequent attacks on ships led to a sharp decline in maritime transport, with tanker traffic initially dropping by approximately 70%, and over 150 vessels anchoring outside the strait to avoid risk.

On March 8, crude oil prices surpassed $100 per barrel for the first time since Russia’s invasion of Ukraine in 2022. On March 11, the 32 member countries of the International Energy Agency agreed unanimously to release 400 million barrels of oil from emergency reserves, equivalent to approximately four days of global consumption.

The IEA states that the war in the Middle East is causing the largest supply disruption in the history of the global oil market. With crude oil and petroleum products flowing through the Strait of Hormuz plummeting from about 20 million barrels per day before the conflict to a trickle, and with limited capacity to bypass this critical waterway and storage facilities filling up, Gulf nations have cut total oil production by at least 10 million barrels per day.

"Selective opening": Iran allows vessels from certain allies to pass.

On March 5, the Islamic Revolutionary Guard Corps of Iran announced that Iran would close the Strait of Hormuz only to vessels from the United States, Israel, and their Western allies. This was reaffirmed on March 8. On March 13, Turkey’s Minister of Transport, Abdulkadir Uraloğlu, stated that Iran had approved a Turkish vessel to pass through the strait. Reports also indicated that two LNG carriers flying the Indian flag and a Saudi oil tanker carrying one million barrels of oil bound for India were granted passage.

However, this "selective opening" does not truly alleviate global supply disruptions. According to data from the United Kingdom Maritime Trade Operations (UKMTO), no more than five vessels have passed through the strait daily since the war began, compared to a historical average of 138 vessels per day.

Trump's "escort alliance" plan has met with little interest.

U.S. President Trump has called on other countries to help Washington reopen the Strait of Hormuz, through which about one-fifth of the world’s oil supply typically passes. So far, responses to Trump’s proposal have been muted, and the countries he specifically named—including China, Japan, France, and the UK—have not publicly committed to deploying naval forces to protect the strait.

In an interview with the Financial Times on Sunday, Trump said that NATO would face a "very bad" future if his proposal received "no response or a negative response." Both Japan and Australia stated on Monday that they have no plans to deploy warships.

Oil price outlook: $109 in the short term, potentially falling to $70 by year-end.

If the Strait of Hormuz experiences prolonged and severe disruption, Brent crude could reach $100 per barrel, but should still fall back to around $70 per barrel by the end of 2026 as markets eventually adapt. In a tail-risk scenario involving attacks by the Iranian regime on regional energy infrastructure and disruption of shipping through the strait, Brent crude could rise above $130 per barrel.

Despite the current price surge, the U.S. Energy Information Administration (EIA) still expects prices to decline later this year if supply flows return to normal. The EIA now forecasts an average Brent crude oil price of $79 per barrel in 2026—up significantly from its previous forecast of $58 per barrel issued a month ago.

Following the Federal Reserve's announcement on Wednesday, the cryptocurrency market saw the expected "sell the news" reaction.

Bitcoin maintained strong momentum heading into the March FOMC meeting, trading above $74,000 after eight consecutive days of gains. However, data compiled by Bitcoin lending firm Two Prime suggests this strength may mask a recurring pattern—FOMC meetings have historically served as short-term bearish catalysts for BTC.

Looking back at 2025, Bitcoin recorded negative returns within 48 hours of 7 out of 8 FOMC meetings. Even during Bitcoin’s significant rally in May, the broader trend pointed to consistent post-meeting weakness, regardless of whether the Fed held rates steady or shifted policy direction.

As Bitcoin was optimistic ahead of the conference, the risk shifted toward the classic "sell the news" reaction.

Powell's remarks on oil prices: add further uncertainty to the crypto market.

Federal Reserve Chair Powell said that rising energy prices are affecting the inflation outlook, but "no one knows" how long the impact will last.

Federal Reserve Chair Powell stated that rising oil prices "are certainly reflected" in policymakers' higher inflation outlook for this year, raising their forecast to 2.7% from 2.4%. He dismissed comparisons to 1970s-style stagflation, noting that unemployment is near its long-run norm and inflation is only slightly above target.

But these statements did not calm the crypto market. The Strait of Hormuz crisis pushed oil prices above $119 per barrel in early March 2026. Rising oil prices increased inflation expectations, reducing the likelihood of interest rate cuts and thereby decreasing liquidity for risk assets.

The key metric the market is currently focusing on: ETF fund flows.

Ranked by importance: (1) Net flow data for Farside Investors’ Bitcoin ETF on March 19 and 20; (2) Direction of Bitcoin’s market share—rising to 60% or falling to 55%; (3) Whether Ethereum can hold the $2,000 psychological level; (4) Whether XRP’s ETF fund flows will reverse or continue to decline; (5) Solana’s price reaction relative to Bitcoin as a signal of altcoin sentiment strength.

ETF fund flow data is a decisive indicator. The sustained net inflows on March 19 and 20 suggest that institutions interpreted the meeting as positive or at least neutral.

Three scenarios for Bitcoin: The "neutral maintenance" scenario appears most likely at this time.

If the Federal Reserve signals that rate cuts may not occur in 2026, this move could weigh on risk assets. In such a scenario, Bitcoin could drop to $65,000, while altcoins would face even greater struggles.

If the Federal Reserve retains the possibility of one interest rate cut later this year, Bitcoin is expected to trade between $68,000 and $74,000.

Finally, if policymakers signal the possibility of two rate cuts, the crypto market may view this as a positive sign. This outcome could push Bitcoin above $75,000, with altcoins experiencing even greater gains.

It now appears that the Fed has chosen the second path—maintaining expectations for one rate cut, but with a hotter inflation outlook, potentially delaying the timing of the cut. This suggests Bitcoin may face a 3-5% "sell the news" pullback over the next 48 hours, followed by consolidation between $68,000 and $74,000.

On March 18, the market held its breath in anticipation of Powell’s press conference. When the answer was revealed, everyone was disappointed.

Fed Chair Powell emphasized the uncertainty brought by oil price shocks and stated that progress on inflation in the U.S. has been less than expected. Stock markets subsequently fell.

PCE inflation is projected to be 2.7% in 2026, above target, and the Fed indicated it is unwilling to cut rates until inflation shows more clear improvement. Most FOMC members do not view rate hikes as the baseline scenario, but they will not cut rates unless inflation makes further progress.

This was the market's answer on March 18:

Inflation has proven more persistent than expected—both overall PCE and core PCE are projected to be 2.7% in 2026, significantly above the Fed’s 2% target.

Rate cuts are further away than expected—the dot plot maintains one cut in 2026, but seven policymakers expect no cuts this year.

"The impact of oil price shocks is unknown"—Powell acknowledged it's too early to assess the economic effects of the war, but has already raised inflation expectations from 2.4% to 2.7%.

Powell refuses to step down—even if Warsh is nominated as chair, Powell will remain a governor until 2028 and continue voting on the FOMC.

The market's reaction to these answers was uniform: U.S. stocks plunged, oil prices surged, and cryptocurrencies experienced a "sell the news" scenario.

This is not the end of March 18, but the beginning of a longer period of uncertainty. Will oil prices come down? Will inflation cool off? Will the Fed cut rates in September, or will we have to wait until 2027?

Nobody knows. Even Powell himself said, "If there was ever a meeting where we should skip the SEP (Summary of Economic Projections), this would be the one, because we really don't know."

But they still released their predictions. The market still reacted. This is March 18, 2026—a moment of certainty defined by uncertainty.