Federal Reserve Chair Jerome Powell on Wednesday said policymakers face meaningful uncertainty about how a surge in oil prices tied to recent Middle East hostilities will affect inflation and the wider U.S. economy. Powell characterized the implications of the ongoing U.S.-Israel action on Iran as "uncertain" and said officials would "have to wait and see what happens."
The Federal Open Market Committee left the target range for the federal funds rate unchanged at 3.50% to 3.75% - a decision that was broadly anticipated by markets. Alongside that decision, the committee's updated Summary of Economic Projections showed continued expectations for at least one rate cut this year and another in 2027.
However, the FOMC's central inflation gauge projection for 2026 was nudged higher. Core PCE inflation in 2026 is now forecast to rise 2.7% year-over-year, up from a December projection of 2.5%. Powell attributed that increase to a combination of spiking oil prices and slower-than-expected progress on tariffs.
Wall Street reacted negatively to the Fed's message and the uncertainty Powell emphasized. The benchmark S&P 500 index, the NASDAQ Composite, and the Dow Jones Industrial Average ended the day sharply lower. For investors who track broad U.S. equity exposure through exchange-traded funds, commonly used vehicles include SPDR S&P 500 ETF Trust (NYSE:SPY), Vanguard S&P 500 ETF (NYSE:VOO), and iShares Core S&P 500 ETF (NYSE:IVV).
Below is a sampling of market and strategist commentary following the Fed meeting and Powell's press conference.
Steve Sosnick, chief strategist at Interactive Brokers
"That got ugly, but it wasn’t all Powell’s fault.We started with a reversal in pre-market futures after Iran’s Pars gas field was attacked, then got a worse than expected PPI report, showing inflationary pressures even before the hostilities began. Considering those two factors, I think we would have been worse if we weren’t awaiting the Fed. But when rates ticked higher during the press conference that was too much for stocks to bear. If the Fed is going to be relatively unconcerned about an oil shock, we can understand bond traders’ concerns, and 6-8 bp is too much for stocks to shrug off."
Tom Graff, chief investment officer at Facet
"Right now the Fed is very divided. Several FOMC members are increasingly worried about inflation, and inclined to wait before considering further rate cuts. Whereas there are at least a couple Committee members who are putting more weight on labor market weakness and prefer cuts now. The war in Iran is adding more uncertainty. Normally the Fed would overlook inflation driven entirely by energy prices. However, the severity of the jump in oil prices could create material spillover effects into other prices. There is also a risk that the closer of the Strait of Hormuz could impact shipping more generally. All of that is likely to convince more FOMC members that waiting for more data before cutting rates is prudent."
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 is not going to rock the interest rate boat during a supply shock."
Jeffrey Roach, chief economist at LPL Financial
"The 2026 core inflation forecasts were revised up to 2.7% from 2.5% in the latest Summary of Economic Projections (SEP). The risk here is disruptions within global oil supply last longer than expected. If economies must deal with elevated petroleum prices now through the summer, the economic impact will be larger than currently priced today."
Gina Bolvin, president of Bolvin Wealth Management
"The Fed didn’t move today—but it didn’t need to. 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. This is no longer a policy-driven market—it’s a fundamentals-driven one. The next phase belongs to companies that can grow without relying on lower rates."
Tom Porcelli, chief economist at Wells Fargo
"There is no doubt in our minds that the spike in oil prices is inflationary over the near term, but this is a supply shock, which monetary policy is ill-equipped to solve. The Fed also has to grapple with the growth-sapping effects of higher oil prices that add a fresh challenge to the already-struggling labor market. We sympathize with the view that the labor market remains on a shaky footing. While the renewed inflation concerns generate risk to our call for the FOMC to cut again by June, we still look for two 25 bps cuts this year and acknowledge they just might end up coming a little later.The inflationary effects of higher oil prices become visible more quickly than does the damage they inflict on growth and the labor market. So long as long-term inflation expectations stay anchored, we believe the Fed could still move the fed funds rate further toward neutral in the second half of the year."
The range of reactions highlights several recurring themes from strategists and economists: that the Fed remains cautious, that the recent jump in oil prices complicates the inflation outlook, and that committee members are weighing competing signals from inflation measures and the labor market. Market participants responded to that uncertainty by repricing risk across equities and fixed income during and after the Fed's announcement and Powell's comments.
Investors and policymakers will be watching incoming data and geopolitical developments closely. Powell's repeated emphasis on uncertainty - and his explicit linking of a higher 2026 core PCE projection to oil and tariff dynamics - signals that the committee will allow new information to shape the timing and sizing of future policy moves rather than commit to a predetermined path.