Key Takeaways
- Jerome Powell announced the Federal Reserve will maintain current interest rates despite surging crude oil prices
- Market expectations for a 2026 rate increase plummeted from 25% to just 5% following Powell’s remarks at Harvard
- WTI crude climbed 5.3% to approach $105 per barrel, marking its first close above $100 since 2022
- The Nasdaq declined 0.75% while the S&P 500 shed 0.4%, erasing earlier session gains
- Bitcoin pulled back to approximately $66,500, ending essentially unchanged on a 24-hour basis
During a Monday address at Harvard University, Federal Reserve Chair Jerome Powell indicated the central bank intends to maintain its current interest rate policy despite escalating oil prices driven by the continuing Iranian conflict.
Powell emphasized that inflation expectations remain “well anchored” when looking past the immediate term. While acknowledging potential future action may be necessary, he stressed it’s premature to assess the comprehensive economic consequences of the ongoing conflict.
Bond markets responded favorably to his statements. The 10-year Treasury yield decreased nine basis points to settle at 4.35%, while the 2-year yield dropped eight basis points to 3.83%.
Market pricing for a Federal Reserve rate hike in 2026 experienced a dramatic shift. Data from CME FedWatch showed the likelihood plunged from 25% on Friday to merely 5% by Monday’s close.
However, equity markets failed to sustain their initial momentum. The Nasdaq closed down 0.75% and the S&P 500 declined 0.4%. Weakness in semiconductor stocks pressured the broader indexes.
Bitcoin similarly surrendered its morning gains, finishing near $66,500 and remaining essentially flat over the previous 24-hour period.
Crude Oil Continues Upward Trajectory
The primary headwind for markets came from the energy sector. WTI crude advanced 5.3% Monday to nearly $105 per barrel, representing the first time WTI settled above the $100 threshold since 2022.
While oil has traded above $100 since hostilities with Iran commenced, Monday’s settlement represented a significant psychological barrier. The military conflict has compromised a critical energy transportation corridor, elevating prices.
President Trump issued warnings via social media Monday suggesting that unless Iran reopens the Strait of Hormuz, the United States would target electrical infrastructure, petroleum facilities, and potentially desalination plants.
Market observers note that trading continues to be influenced by daily developments from the conflict zone. Krishna Guha from Evercore indicated the narrative has evolved toward concerns about economic growth risks stemming from persistently elevated oil prices.
“The probability of one or more cuts is much higher than the probability of a hike,” Guha stated.
Market Uncertainty Persists
Chris Senyek from Wolfe Research indicated his firm continues to hold a defensive market stance. He highlighted the Trump administration’s inconsistent messaging regarding both escalation and potential de-escalation of hostilities.
Chris Larkin from E*Trade, a Morgan Stanley company, suggested markets will find it challenging to move beyond current turbulence without concrete resolution to the conflict.
The fixed income market is experiencing its worst monthly performance since 2024. Equities are on pace for their poorest monthly showing since 2022.
The White House continues to issue warnings of additional strikes against Iranian infrastructure as the conflict enters its fifth week with no apparent resolution.
Powell remarked Monday: “We will eventually maybe face the question of what to do here. We’re not really facing it yet.”
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