US stocks sold off following the US Federal Reserve’s decision to keep rates unchanged for the second time, while also projecting higher inflation amid the Middle East crisis and offering little indication of when it might next cut short-term borrowing costs.
All three key indices finished in the red, with the Dow Jones Industrial Average falling 1.64% to its lowest level in four months. With today’s decline, the index has dropped 5.6%, putting it on track for its worst monthly fall since 2022.
The S&P 500 and Nasdaq also declined by 1% each. Meanwhile, the US dollar rebounded above the 100 mark.
US Fed holds key interest rates steady
The Federal Open Market Committee voted 11–1 to hold the benchmark federal funds rate in a range of 3.5% to 3.75%. Governor Stephen Miran dissented, calling for a quarter-point reduction.
The decision was widely expected amid an uncertain outlook driven by ongoing tensions in the Middle East, which have pushed energy prices to multi-year highs, prompting the US Federal Reserve to raise its preferred inflation gauge (PCE) to 2.7% by the end of 2026—up from the previous forecast of 2.4%.
US Federal Reserve Chair Jerome Powell said he expects higher energy prices due to the war in the Middle East to boost inflation in the near term, adding, however, that the broader economic implications remain uncertain.
The central bank operates under a dual mandate of keeping inflation near its long-term 2% target while ensuring maximum employment. However, rising energy prices driven by the Iran conflict have increased inflationary pressures, prompting the central bank to adopt a wait-and-watch approach before making any immediate policy moves.
Although US Federal Reserve officials have held borrowing rates unchanged, they still expect one quarter-point rate cut in 2026 and another in 2027. Before the war, a rate cut was expected as early as the summer, with another possible later in the year.
Meanwhile, policymakers slightly upgraded their outlook for growth in 2026 to 2.4%, from the 2.3% they forecast in December. Their unemployment forecast remained unchanged at 4.4% for the end of 2026.
Besides, the headline Producer Price Index (PPI) rose 0.7% in February, following January’s 0.3% increase, the US Department of Labor announced on Wednesday. The latest inflation data came in hotter than expected, as economists had been looking for a 0.3% increase.
Crude oil prices regain strength
Crude oil prices have regained strength, with Brent crude futures gaining 3.8% at $107.38 per barrel, following reports of an attack on Iran’s South Pars gas field.
South Pars is the Iranian segment of the world’s largest natural gas deposit, which Iran shares with Qatar across the Gulf. Gas tanks and parts of a refinery were hit, workers were evacuated to safe locations, and emergency crews were attempting to extinguish the fire, Reuters reported, citing Iran’s Fars news agency.
Iran has also threatened attacks on oil facilities in Saudi Arabia, the United Arab Emirates, and Qatar.
Attacks on energy infrastructure have increasingly become a central feature of the conflict, with Iran extending its attacks on oil fields and refineries across the Gulf region, while the US conducted heavy strikes on Kharg Island earlier this week—Iran’s economic lifeline—which handles nearly 90% of the country’s crude oil exports.
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