U.S. stocks slumped after a report said inflation was primed to worsen even before the war with Iran caused oil prices to spike along with comments from the head of the Federal Reserve pushed Wall Street to see less chance of getting the lower interest rates that it loves. The S&P 500 fell 1.4% and flipped to a loss for the week so far. The Dow Jones Industrial Average dropped 768 points, or 1.6% and the Nasdaq composite slid 1.5%.
Losses deepened after the Fed held its main interest rate steady, skipping expected cuts to boost the job market and economy. Officials still project one cut by end-2026 but Chair Powell cautioned on uncertainty from oil prices and Trump tariffs' full impact, noting the Fed typically ignores temporary oil spikes unless inflation expectations surge. Several officials cut forecasts to one cut from two, prompting traders to slash odds of a 2026 cut to 49% (from 95% a month ago, per CME Group data).
Brent crude oil has surged from about $70 per barrel before the war to $107.38, up 3.8% daily while U.S. benchmark crude hit nearly $99 before closing at $96.32. The war has disrupted the Persian Gulf's energy sector, with Iran's state TV announcing attacks on oil and gas infrastructure in Qatar, Saudi Arabia, and the UAE following an assault on its South Pars field. Prolonged high prices risk triggering severe global inflation.
A recent report revealed U.S. wholesale inflation unexpectedly accelerated to 3.4% last month, building pressures before the war. This likely influenced the Fed's 11-1 decision to hold rates steady, despite Trump's calls for cuts to boost the economy and investments—though lower rates could fuel more inflation. Only one voter favored a reduction.
Gold dropped back below $5,000 per ounce after falling 2.2% to settle at $4,896.20. It’s lower than it was at the start of the war, despite its reputation as a safe haven during uncertain times. Because it pays its owners nothing, gold begins to look less attractive to investors when Treasury bonds are paying more in interest.
Macy’s jumped 4.7% after reporting stronger profit and revenue for the latest quarter than analysts expected. The retailer behind Bloomingdale’s and Blue Mercury is in the midst of a turnaround plan to drive growth under CEO Tony Spring. General Mills fell 3% after the company behind the Pillsbury, Progresso and Wheaties brands reported a weaker profit for the latest quarter than analysts expected. CEO Jeff Harmening is investing in its brands in hopes of driving growth and it’s sticking with its forecast for profit over the full fiscal year.
In stock markets abroad, indexes fell in Europe following a stronger finish in Asia. Tokyo’s Nikkei 225 rallied 2.9% after the government reported exports in February were higher than expected. South Korea’s Kospi leaped 5%. The pan-European Stoxx 600 finished the session down 0.7%, reversing earlier gains, with most sectors and all major courses closing in negative territory.
Treasury yields moved upward in the bond market, along with the higher-than-expected update on inflation at the wholesale level. The yield on the 10-year Treasury climbed to 4.26% from 4.20% late Tuesday and from just 3.97% before the war with Iran started. Higher Treasury yields grind down on prices for all kinds of investments, from stocks to crypto to gold.