Key Takeaways
- Jerome Powell announced the Federal Reserve will maintain current interest rates despite escalating oil costs
- Probability of rate increases plummeted from 25% to just 5% following Powell’s remarks at Harvard
- WTI crude oil surged 5.3% to approach $105 per barrel, marking the first $100+ close since 2022
- The Nasdaq declined 0.75% while the S&P 500 lost 0.4%, reversing morning gains
- Bitcoin pulled back to approximately $66,500, showing minimal change across 24 hours
During a Monday address at Harvard University, Federal Reserve Chairman Jerome Powell indicated the central bank intends to maintain its current interest rate policy despite surging crude oil prices driven by escalating tensions in Iran.
Powell emphasized that inflation expectations continue to stay “well anchored” when looking beyond immediate concerns. While acknowledging potential future action may be necessary, he stressed it’s premature to fully assess the conflict’s economic ramifications.
His remarks provided some comfort to fixed-income markets. The 10-year Treasury yield declined nine basis points to reach 4.35%, while the 2-year yield dropped eight basis points to 3.83%.
Expectations for a Federal Reserve rate increase in 2026 collapsed dramatically. CME FedWatch data showed the likelihood tumbling from Friday’s 25% down to a mere 5% by Monday’s close.
However, equity markets failed to sustain their morning momentum. The Nasdaq closed down 0.75% and the S&P 500 shed 0.4%. Weakness in semiconductor stocks dragged down broader indices.
Bitcoin similarly surrendered its earlier advances, stabilizing around $66,500 with virtually no net change over the previous day.
Energy Prices Continue Climbing
The primary headwind for financial markets was the energy sector. WTI crude jumped 5.3% Monday to settle just below $105 per barrel. This represented the first time WTI finished above the $100 threshold since 2022.
While oil has traded above $100 since the Iranian conflict erupted, Monday’s closing price established a significant benchmark. The ongoing conflict has severely disrupted critical energy transportation routes, driving prices upward.
President Trump used social media Monday to warn that failure by Iran to reopen the Strait of Hormuz could trigger American strikes against power generation facilities, petroleum infrastructure, and potentially water desalination plants.
Market observers note that trading continues to be heavily influenced by evolving news from the conflict zone. Evercore’s Krishna Guha observed the market narrative has pivoted toward economic growth concerns stemming from persistently elevated oil prices.
“The probability of one or more cuts is much higher than the probability of a hike,” Guha stated.
Investor Uncertainty Persists
Wolfe Research’s Chris Senyek indicated his firm continues to hold a cautious market stance. He highlighted the Trump administration’s inconsistent messaging regarding both military escalation and potential diplomatic solutions.
E*Trade from Morgan Stanley’s Chris Larkin suggested markets will find it challenging to move beyond current turbulence without a definitive resolution to the conflict.
Bond markets are experiencing their worst monthly decline since 2024. Equity markets are on pace for their poorest monthly showing since 2022.
The administration in Washington has issued additional warnings of strikes against Iranian infrastructure as the conflict enters its fifth week with no apparent conclusion.
Powell stated Monday: “We will eventually maybe face the question of what to do here. We’re not really facing it yet.”
