President Trump's selection of Federal Reserve Gov. Michelle Bowman as the next vice chair for supervision comes as banking groups and their allies in Congress asked the administration to fill the position quickly. Bowman was the preferred choice for many in the industry.

"March is not an overly positive month for munis, but a lot will depend on U.S. Treasuries," said Barclays strategist Mikhail Foux.

Federal Reserve Chair Jerome Powell emphasized the need for patience amid uncertainty over the Trump administration's policies, saying there would be no immediate rate changes but that the Fed would proceed carefully.

The Federal Reserve appears to be on hold, waiting for clarity on inflation and fiscal policy. The March 19th Federal Open Market Committee meeting, with a new Summary of Economic Projections will illuminate members' revised thoughts on interest rates. Join us March 20 at 12:00 pm as Mike Goosay, Chief Investment Officer of Global Fixed Income at Principal Asset Management, breaks down the meeting, Chair Powell's press conference and the SEP.

Inflation is front and center this week, with the consumer price index report released on Wednesday and the producer price index on Thursday.

Investors added $741.7 million to municipal bond mutual funds in the week ending Wednesday, following $2.078 billion of inflows the prior week, according to LSEG Lipper data.

State and local governments are on strong financial footing and are investing in Treasury securities as chaotic federal moves shake out.

Even with the possibility of inflation and fiscal policy-induced headwinds, there is much to be optimistic about in the muni market, despite some possible near-term turbulence, said GW&K strategists.

The Fed meets this week, but the probability of another cut at Wednesday's meeting seems low amid elevated inflation and growth data, said Matt Fabian, a partner at Municipal Market Analytics.

"There are a lot of moving parts here with the potential to either help or hinder the Fed's quest for price stability and maximum employment" this year, noted BMO Deputy Chief Economist Michael Gregory, who says the Fed will "stand pat."