What we're covering here
• The Federal Reserve’s rate-setting committee is meeting this week against a backdrop of war, an energy crisis, rising costs, a probe of the Fed chair and ongoing attacks on the central bank’s independence.
• Fed officials were expected to cut rates at least once this year, but economists now say all bets are off after the US and Israel launched a war with Iran.
• The conflict in the Middle East has created an energy price shock that could push up the cost of consumer goods and reignite the higher inflation the Fed has been trying to contain since 2022.
• Still, markets overwhelmingly expect the central bank will on Wednesday afternoon announce a pause, leaving interest rates in the 3.5% to 3.75% range.
What is the "dot plot" and why is this one especially important?
While the Federal Reserve is widely expected to hold rates steady on Wednesday, it is less clear what will happen at upcoming meetings this year.
That’s because the war with Iran has increased the risk of higher inflation stemming from a surge in energy prices. Ordinarily, that might lead the Fed to consider raising interest rates, but since the labor market has been steadily weakening, central bankers may be mulling a rate cut. However, that could add to inflationary concerns.
At 2 p.m. ET today, the Fed’s game plan might become slightly more clear. In addition to announcing its interest rate decision, that’s when the Fed will release what’s colloquially known as the “dot plot.”
The dot plot is part of the Fed’s Summary of Economic Projections, a quarterly forecast on the economic outlook from all 12 regional Fed bank presidents and the seven members of the Fed’s Board of Governors.
Their forecasts are anonymous and are displayed simply as a dot on a plot — hence the moniker. But what gets the most attention is median value of various projections officials make.
Among those is where they believe interest rates should be to achieve an optimal balance between risks to inflation and employment. But their predictions should be taken with a giant grain of salt because as officials learn more about how economic conditions evolve, their views about the best course of action likely will, too.
Stocks fall and oil prices rise as Iran war keeps traders on edge
US stocks opened lower Wednesday and global oil prices surpassed $108 per barrel as the Iran war continued to roil markets.
The Dow was down 173 points, or 0.37%. The S&P 500 fell 0.3%, and the Nasdaq sank 0.32%.
Stock futures turned lower and oil prices climbed after Iran said the United States and Israel attacked oil and natural gas facilities in the country. Brent crude, the global oil benchmark, rose 4.7%, to $108.28 per barrel. US crude oil rose 2.15%, to $97.58 per barrel.
Stocks and bonds were also under pressure as traders reacted to hotter-than-expected inflation data.
Treasury yields ticked higher as investors sold bonds. The US dollar strengthened against other major currencies.
Traders are also on alert for insight about the Federal Reserve’s outlook for interest rates. Wall Street this afternoon will get the Fed’s Summary of Economic Projections as well as comments from Fed Chair Jerome Powell.
“We expect no changes to interest rates on Wednesday, and while the Fed typically looks through oil shocks, we’ll be lucky to get even one rate cut this year,” Rick Gardner, chief investment officer at RGA Investments, said in a note.
US gas prices hit highest level in more than two years
Gasoline prices in the United States hit their highest level in almost two and a half years on Wednesday, delivering another setback to Americans struggling to get by.
The price of a gallon of regular gas rose another 5 cents, on average, to $3.84, the highest price since September 25, 2023, according to the American Automobile Association.
Gas is now averaging $4 or more in seven states, and it has topped $5 a gallon in California, Hawaii and Washington, AAA said.
Wholesale inflation surged in February, even before the Iran war
US wholesale inflation rose much faster than anticipated in February, hitting its highest rate in a year as prices rose broadly for businesses – particularly for energy and food.
The Producer Price Index increased 0.7% from January, driving the annual rate to 3.4% – the highest since February 2025, according to Bureau of Labor Statistics data released Wednesday.
Economists expected wholesale prices to rise 0.3% from January, holding the annual rate unchanged at 2.9%, according to FactSet consensus estimates.
Food prices jumped 2.4%, the highest monthly increase in nearly five years. Energy prices climbed 2.3%, rising in anticipation of a Middle East conflict.
When excluding food and energy, wholesale prices rose 0.5%, lifting the annual rate to 3.9%, the highest since January 2025.
Economists expected core PPI to rise 0.2% from the month before and the annual rate to moderate to 3.5%.
The PPI, which measures the average change in prices that producers receive for their goods and services, serves as a potential bellwether for the prices consumers may see in the months ahead.
The monthly report also offers up some signals for the Federal Reserve’s preferred inflation gauge, as several PPI data points feed into the Personal Consumption Expenditures price index.
Stock futures turn lower ahead of Fed decision
US stock futures fell Wednesday morning as traders digested inflation data, braced for news from the Iran war and awaited the Federal Reserve’s decision on interest rates, set to be announced at 2 p.m. ET.
Dow, S&P 500 and Nasdaq 100 futures erased earlier gains after a Bloomberg News report, citing Iran state TV, that the South Pars natural gas field was hit by US and Israeli strikes.
Stock futures remained under pressure after new data showed wholesale inflation rose more than expected in February. Dow futures were down 128 points, or 0.27%. S&P 500 and Nasdaq 100 futures each also fell 0.27%.
Traders had already expected the Fed to hold rates steady this month, but the Iran war has clouded the outlook for future rate cuts. Traders are pricing in just one rate cut this year, to take place in December, according to CME FedWatch.
Wall Street’s focus will be on the Fed’s quarterly Summary of Economic Projections, as well as remarks from Fed Chair Jerome Powell.
Despite recent fluctuations in oil prices, stocks are coming off two days in the green. After sliding 1.6% last week, the S&P 500 is up 1.27% so far this week.
Traders continue to monitor headlines about the effective closure of the Strait of Hormuz. Oil prices were mixed Wednesday morning: Brent crude, the global benchmark, rose 2.2%, to $105.73 per barrel. US crude oil egded lower to $95.50 per barrel.
Will the Fed be able to cut rates at all this year?
The US-Israeli war with Iran has sparked the biggest disruption to oil supply in history, sending energy prices higher and threatening to jack up the cost of nearly everything Americans buy. At the same, investors and Fed officials are still waiting to see the full effects of President Donald Trump’s tariffs on inflation.
Already, the central bank forecasts only one quarter-point rate cut this year — and new projections are set to be released Wednesday.
But several economists, including ones at Mizuho Securities, Goldman Sachs, Morgan Stanley and JPMorgan, believe the central bank will continue to project one quarter-point cut this year. In some cases, that differs from what they believe the central bank should do.
“While we think the economics argue for rates unchanged for a while, we also think the leadership may have a little bit of an employment bias,” JPMorgan chief US economist Michael Feroli wrote in a note earlier this week. (An employment bias would mean the Fed favors cutting rates to boost the labor market rather than concentrating more on the inflation side of its mandate.)
Morgan Stanley economists, meanwhile, believe that two cuts are necessary this year, given the latest jobs report, which showed the economy shed 92,000 jobs last month.
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