3 big questions, 2 answers, and rate cut hopes remain alive
👋 Good morning! The rate-holding Fed may have kept its projection to cut rates this year, but the reaction to the central bank’s meeting and hot inflation data pushed markets into the red, breaking a two-day winning streak for stocks.
On Wednesday, the S&P 500 (^GSPC) closed 1.4% down, the Dow (^DJI) 1.6%, and the Nasdaq (^IXIC) 1.5%. Oil, meanwhile, jumped as the Iran conflict further spooked energy markets, with Brent (BZ=F) touching $110 per barrel.
On the agenda this morning:
✂️ Rate cut hopes remain as the Fed’s expectations change
🏦 Powell pours cold water on stagflation concerns
🏷️ Inflation worries spike
🛢️ Hormuz disarray
🙋 Three big questions, two answers
✈️ Airlines say consumers are spending through it
📆 What we’re watching Thursday: Corporate results from FedEx (FDX), Carnival Corporation (CCL), and Darden Restaurants (DRI) are on our watchlist today — as are any more Fed musings as markets digest Powell’s comments.
And, of course, Iran.
🚢 President Trump waives the Jones Act. The pause on the requirement that only US ships can travel between domestic ports is a bid to fight rising energy prices. Economists have their doubts.
Traders work on the floor of the New York Stock Exchange (NYSE) in New York on March 18, 2026. (ANGELA WEISS / AFP via Getty Images) ·ANGELA WEISS via Getty Images
Even before the war in Iran broke out, markets expected the Fed to continue its wait-and-see approach as it weighed a fragile yet steady labor market with stubborn inflation.
So when war caused an oil shock and the prospect of a growth scare — things that require two contrary remedies — more “wait-and-see” was a foregone conclusion.
But what wasn’t was that the central bank would keep rate cuts for 2026 on the table, a surprise to some in the year’s first dot plot (Summary of Economic Projections).
The dot plot showed Fed officials see both growth and inflation expectations rising this year, while expecting to cut rates once.
And despite labor market concerns, no weakening is expected. If that comes to pass, this would prevent the Fed from having to fight on both sides of its mandate.
As Chair Jerome Powell made clear, these are not plans, but simply “projections” (as the name says) that the labor market will remain in balance. And in a dynamic environment, we may be looking at a very different set of projections in June.
U.S. Federal Reserve Chair Jerome Powell holds a press conference following a two-day meeting of the Federal Open Market Committee (FOMC), at the Federal Reserve in Washington, D.C., U.S., March 18, 2026. REUTERS/Kevin Lamarque ·REUTERS / Reuters
Markets did not enjoy Wednesday’s day at the Federal Reserve.
But amid the relative doom and gloom about inflation was a fairly upbeat Fed chair who waved away stagflation concerns that have been emerging amid the oil shock and growth worries.
“You know, when we use the term stagflation, I always have to point out that was a 1970s term,” Powell mused. Back then, he added, “unemployment was in double figures, and inflation was really high, and the misery index was super high.”
It was a clear message: We may be having challenges, but they’re not those challenges.
In fact, US central bankers envision improved economic growth, adjusting their GDP forecast for 2026 to 2.4% from 2.3% — and a stable labor market.
Despite acknowledging the massive uncertainty, Powell described an economy that, in the aggregate, is solid, even if that balance is delicate and uncertain.
The Fed has only managed to keep inflation at bay. Pricing pressures still persist, well above the central bank’s target level. But Powell expects inflation factors to be in the rear view once markups from Trump’s tariffs fully work their way through the economy.
An answer for both the “stag” and the “inflation.”
Prices are displayed at gas stations on March 18, 2026 in the borough of Brooklyn, New York City. (Andrew Lichtenstein/Corbis via Getty Images) ·Andrew Lichtenstein via Getty Images
Even prior to the Fed meeting, investor concerns over inflation were spiking.
The Producer Price Index (PPI) showed that wholesale prices had jumped more than expected, rising 0.7% in February, more than double economists’ expectations of 0.3%.
A huge component was energy costs, namely diesel. Notably, these numbers precede the Iran conflict.
The inflation concerns sent stocks into the red and added more weight to the possible economic fallout amid the current oil shock that’s seen oil prices surf the $100 mark.
Fed Chair Jerome Powell’s comments a few hours later did little to calm the nerves, noting mounting uncertainty and publishing a dot plot showing inflation rising higher than previously expected.
Tankers sail in the Gulf, near the Strait of Hormuz, as seen from northern Ras al-Khaimah, near the border with Oman’s Musandam governance, amid the U.S.-Israeli conflict with Iran, in United Arab Emirates, March 11, 2026. (REUTERS/Stringer/File Photo) ·Reuters / Reuters
The Strait of Hormuz, the critical chokepoint responsible for the surging oil prices, remains essentially closed to all ships save for those with ties to Iran.
While the White House has put forth various solutions to force open the Strait, none have resulted in meaningful progress according to shipping data.
With a fifth of the world’s oil supply passing via the waterway, the shock has hit oil prices globally — even in the US, where oil is plentiful.
The Trump administration’s suspension of the Jones Act may temporarily calm some costs by allowing non-US ships to move port to port, potentially improving access for New England and parts of the West Coast.
But markets are mostly still after a coherent solution to the Hormuz problem.
“The thing I really want to emphasize is that nobody knows. You know, the economic effects could be bigger, they could be smaller, they could be much smaller or much bigger. We just don’t know.”
— Fed Chair JeromePowell, on the war in Iran, speaking at the press conference on Wednesday
One question on everybody’s mind was answered on Wednesday during the Fed’s press conference.
Stay on at the Fed as chair should nominee Kevin Warsh remain unconfirmed by his term on May 15.
Remain on the board as a regular FOMC member until the legal action against him is resolved.
Decide later as to whether he stays on the FOMC as a regular board member after the legal action is resolved. “I will make that decision based on what I think is best for the institution and for the people we serve,” he said.
Despite more costly jet fuel and, in turn, more expensive airfare, industry executives say consumers aren’t deterred. At least at current prices.
Demand for flights has not slowed even as airlines find themselves in the middle of an oil war.
Executives at American Airlines, Delta Air Lines, and United Airlines said they had incurred $400 million each in higher fuel costs, the New York Times reported, but they are not pulling back on their profit forecasts for the current quarter, signaling that ticket sales are holding strong.
“It’s across all segments, covering corporate, covering international, covering premium leisure, covering main cabin, covering our domestic system,” said Ed Bastian, Delta’s chief executive, at the JPMorgan 2026 Industrials Conference in Washington. “We’re seeing strength in every market that we look at.”
The industry’s pivot to paid upgrades and premium seating is likely playing a part in the demand buffer. With a larger customer base that’s less sensitive to airfare prices, the airlines can apparently ride out the turbulence.
Economic data: Initial jobless claims, week ended March 14 (213,000 previously); Continuing claims, week ended March 7 (1.85 million previously); Philadelphia Fed business outlook, March (16.3 previously); New home sales, month-on-month, January (-2.7% expected, -1.7% previously); Wholesale inventories, month-on-month, January final reading (+0.2% expected); Building permits, month-on-month, January final reading (-5.4% previously)
