Stocks, Bonds Fall on Powell’s Inflation Worries: Markets Wrap
(Bloomberg) — Wall Street remained on edge amid the war in Iran, with stocks and bonds falling as Federal Reserve Chair Jerome Powell said higher energy prices will push up overall inflation, which may curb potential rate cuts.
While the central bank kept its projections for a rate reduction in 2026 and another one in 2027, traders trimmed their expectations for a cut this year. Treasury yields climbed as Powell said it’s important to keep rates mildly restrictive while acknowledging the Fed is in a tough position. The S&P 500 dropped 1%, halting a two-day gain. Brent settled above $107.
Powell Doesn’t See US facing 1970s-Style Stagflation
Markets were rattled anew as Iran warned Gulf countries that a number of energy assets are now “legitimate targets” after Israel attacked its giant South Pars gas field. The complex that houses the world’s largest liquefied natural gas export plant has suffered “extensive damage” after an Iranian attack.
“The implications of developments in the Middle East for the US economy are uncertain,” officials said Wednesday in a post-meeting statement. “The committee is attentive to the risks to both sides of its dual mandate.”
The spike in energy costs risks adding to price pressures while restraining growth. The bigger issue for the economy is that inflation is proving sticky while energy costs are rising, which compresses the Fed’s room to maneuver, according to Christian Hoffmann at Thornburg Investment Management.
One point that has not received enough attention is the disinflationary impact of high oil prices through weaker demand, Hoffmann noted. Energy is clearly an inflation risk, but also an economic headwind, he added.
“The balance of risks has shifted, and the bar for cutting rates has risen meaningfully,” said Luis Alvarado at Wells Fargo Investment Institute. “Against that backdrop, the Fed’s current ‘wait‑and‑see’ approach appears appropriate.”
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 Fed didn’t move today — but it didn’t need to,” said Gina Bolvin, president of Bolvin Wealth Management Group. “This is a central bank that’s comfortable waiting, watching, and staying flexible. One projected cut tells you everything: the Fed is not in a rush, and neither should investors be.”
Crude prices have soared about 50% since the war in the Middle East began, with regional energy giants being forced to cut production amid the effective shuttering of the Strait of Hormuz. About a fifth of the world’s oil normally flows through the waterway.
Vice President JD Vance and other officials plan to huddle with oil executives to look for ways to tame fuel prices, according to people familiar with the matter. President Donald Trump temporarily waived a shipping mandate to lower the cost of transporting crude, gas and other commodities.
“Each headline out of the Middle East causes knee-jerk reactions,” said Jay Woods at Freedom Capital Markets. “Crude is driving the bus and the longer it stays above $90 – or spikes higher – the ‘buy-the-dip crowd’ grows quieter and the ‘sell-the-rally narrative’ gets more dominant.”
Corporate Highlights:
Soaring prices for memory chips have made Micron Technology Inc. one of the standout stocks of 2026, and its earnings after the close on Wednesday will give clues on whether the rally is sustainable. Macy’s Inc. forecast stronger-than-expected sales in the current quarter, a sign that its fiscal year is off to a solid start as middle- and higher-income households continue to spend. Lululemon Athletica Inc. forecast a second-straight year of profit declines, further pressuring a brand that’s dealing with product mishaps while searching for a new chief executive officer. General Mills Inc. reported results for last quarter that missed Wall Street projections, weighed down by a decision to lower prices. But executives said they expected to realize the benefits of those reductions in the near future. Some of the main moves in markets:
Stocks
The S&P 500 fell 1% as of 3:17 p.m. New York time The Nasdaq 100 fell 1% The Dow Jones Industrial Average fell 1.4% Currencies
The Bloomberg Dollar Spot Index rose 0.5% The euro fell 0.5% to $1.1477 The British pound fell 0.5% to $1.3288 The Japanese yen fell 0.5% to 159.74 per dollar Cryptocurrencies
Bitcoin fell 4.3% to $71,339.43 Ether fell 6% to $2,188.44 Bonds
The yield on 10-year Treasuries advanced six basis points to 4.26% Germany’s 10-year yield advanced three basis points to 2.94% Britain’s 10-year yield advanced four basis points to 4.74% Commodities
West Texas Intermediate crude rose 1.2% to $97.38 a barrel Spot gold fell 2.9% to $4,861.89 an ounce ©2026 Bloomberg L.P.
