Wall Street reacted negatively to Powell's comments and the uncertainty, with the benchmark S&P 500, NASDAQ Composite, and Dow Jones Industrial Average all ending significantly lower.
Federal Reserve Chairman Jerome Powell on Wednesday expressed great uncertainty about the impact of the sharp rise in oil prices due to the Middle East conflict on inflation and the US economy.
Powell stated that the impact of the ongoing US and Israeli attacks on Iran is "uncertain" and that policymakers "will have to wait and see what happens."
Earlier, the Federal Open Market Committee (FOMC) left the federal funds rate unchanged at 3.50%-3.75%, as expected. A separate updated FOMC dot chart continues to show expectations for at least one rate cut this year and one in 2027. However, core PCE inflation in 2026 is now projected to grow 2.7% y/y, up from the 2.5% forecast in December. Powell stated that the increased forecast reflects a combination of both a sharp rise in oil prices and slow progress on tariffs.
Wall Street reacted negatively to Powell's comments and the uncertainty, with the benchmark S&P 500, NASDAQ Composite, and Dow Jones Industrial Average all ending significantly lower.
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Below are the various reactions to the Fed's decision:
Steve Sosnick, Chief Strategist at Interactive Brokers:
"The situation has worsened, but it's not entirely Powell's fault.
We started with a premarket reversal in futures after the attack on Iran's Pars gas field, then got a worse-than-expected PPI report, showing inflation pressures even before the military action began. Given these two factors, I think it would have been even worse if we hadn't expected the Fed's decision.
But when rates rose during the press conference, it was too much for stocks. If the Fed is relatively indifferent to the oil shock, we can understand bond traders' concerns, and a 6-8 bps rise is too much for stocks to ignore." Tom Graff, Chief Investment Officer at Facet:
"Right now, the Fed is very divided. Several FOMC members are increasingly concerned about inflation and are inclined to wait before considering further rate cuts. Meanwhile, there are at least a couple of committee members who place greater weight on labor market weakness and prefer a cut now.
The war in Iran adds even more uncertainty. Normally, the Fed would ignore inflation driven entirely by energy prices. However, the severity of the oil price spike could create significant spillover effects on other prices. There's also the risk that the closure of the Strait of Hormuz could impact shipping more broadly.
All of this will likely convince more FOMC members that it's prudent to wait for more data before cutting rates."
Jamie Cox, Managing Partner at Harris Financial:
"The Fed is choosing to look through the fog of conflict, for now. A dual-mandate Federal Reserve isn't going to rock the interest rate boat during a supply shock." Geoffrey Roach, Chief Economist at LPL Financial:
"Core inflation forecasts for 2026 were revised upward to 2.7% from 2.5% in the latest Survey of Economic Prospects (SEP). The risk here is that disruptions to global oil supplies will last longer than expected. If economies have to deal with higher oil product prices now and into the summer, the economic impact will be greater than is reflected in current prices."
Gina Bolvin, President of Bolvin Wealth Management:
"The Fed didn't move today—but it didn't have to. This is a central bank willing to wait, watch, and remain flexible. One forecast snapshot tells you everything: the Fed is in no hurry, and investors shouldn't either.
This is no longer a policy-driven market—it's a fundamentals-driven market. The next stage belongs to companies that can grow without relying on rate cuts."
Tom Porcelli, Chief Economist at Wells Fargo:
"We have no doubt that the oil price spike is inflationary in the short term, but it is a supply shock that monetary policy is poorly managing. The Fed must also address the negative growth implications of higher oil prices, which add a new challenge to an already struggling labor market.
We share the view that the labor market remains on shaky ground. While renewed inflation concerns pose a risk to our forecast that the FOMC will cut rates again by June, we still expect two 25 bp cuts this year and acknowledge that they could come a little later.
The inflationary effects of higher oil prices are becoming visible faster than the damage they inflict on growth and the labor market. As long as longer-term inflation expectations remain anchored, we believe the Fed can still move the federal funds rate closer."