Reviewing the Fed’s policy decision, plus the latest on inflation and earnings expectations.
As the war with Iran continued this week, so too did market volatility with the S&P 500 Index and the Dow Jones Industrial Average down 1.5% and 2%, respectively. Markets were also not impressed by the hawkish rhetoric emerging from the Federal Reserve following its meeting nor with a hot reading on producer inflation captured before the Middle East military action began.
Starting with the war, oil prices continue to trend at high levels given the ongoing conflict. Israel struck Iran’s South Pars field, the world’s largest natural gas field, leading Iran to threaten retaliation against energy infrastructure across the Persian Gulf. As oil prices rose in the wake of the attack, President Trump suspended the Jones Act for 60 days. Signed into law in 1920, the Jones Act requires all goods transported between U.S. ports to be carried by U.S. built, owned, flagged and crewed vessels. As of this writing, Brent crude is trading at $107 per barrel and WTI Crude is $96 a barrel.
But there were a few glimmers of hope that things could wrap up soon. For example, when asked about ground forces in the Mideast, President Trump said he is “not putting troops anywhere.” Meanwhile, Israeli Prime Minister Benjamin Netanyahu said that Iran can “no longer enrich uranium” or manufacture ballistic missiles. Offsetting that messaging was the Pentagon’s request for $200 billion of supplemental funding for the war, on top of its $1 trillion annual budget. Early reaction was that such a large request would be challenging to pass without more details, particularly since the Trump administration has yet to seek congressional approval for the war itself.
Turning to the Fed meeting, there were no surprises as the Federal Open Market Committee in an 11–1 vote kept its target range for interest rates steady between 3.50% and 3.75%. This marks the second straight meeting officials held firm on the fed funds rate. The central bank’s policymakers dropped language from their January statement describing the labor market as showing signs of stabilization. In its place, they said the unemployment rate was “little changed in recent months.” The Committee also said, “The implications of developments in the Middle East for the U.S. economy are uncertain. The committee is attentive to the risks to both sides of its dual mandate.”
Notably, the central bank’s “dot plot,” which shows Fed officials’ estimates for interest rates, pointed to rates remaining steady this year, and just one rate cut in 2027. Meanwhile, its latest economic projections revealed a slight rise in officials’ inflation expectations for this year and next. While stagflation—the toxic economic combination of elevated inflation and weak economic growth—has been a concern for some investors this year, Fed officials notably raised their gross domestic product (GDP) forecasts for 2026, taking that risk off the table, at least in the Fed’s eyes.
This meeting result was expected but the rhetoric was disappointing to investors hoping for reassurance an interest-rate cut might be coming. But it was a tough ask, especially after the Bureau of Labor Statistics revealed that there was a broad-based increase in producer prices last month. February PPI rose 0.7%, well above the consensus estimate for 0.3%. Core PPI—which excludes food and energy—surged 0.5%. On an annual basis, PPI rose 3.4% in February, the highest in a year and well above consensus estimates for 2.9%, while core prices rose 3.9% year over year.
The scorching February PPI report spooked investors, especially since nearly every category saw a price increase before the war sent crude prices sky high.
Even so, investors might take some comfort that forecasters largely remain optimistic about earnings growth and U.S. markets, despite persistent inflation concerns and geopolitical risks. Indeed, for the calendar year, FactSet is predicting annual S&P 500 earnings growth of 15.3%, up slightly from the average estimate of 14.9% at year-end 2025. Wall Street analysts generally haven’t budged from their end-of-year S&P 500 price projections either, most of which pencil in a solid rally from here.
That news, and the fact that today is the first day of spring, I hope gives you some comfort amid the swirl of geopolitical risk and alarming headlines that seem to arrive on our doorstep hourly.
If all else fails, there is also March Madness basketball to distract. In the words of legendary UCLA basketball coach John Wooden, “Things turn out best for the people who make the best of the way things turn out.” My kids told me that after my bracket was already busted by this morning.
Written by a human.