Quick overview

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Energy supply concerns continue to keep crude prices elevated. As expected, the Federal Reserve held interest rates unchanged and projected only one rate cut this year.

U.S. stocks fell on Wednesday, March 18, after stronger-than-expected producer inflation data dampened investor sentiment, already weighed down by the economic impact of rising oil prices and the Fed’s rate decision.

In this context, the Dow Jones Industrial Average dropped 1.6% to 46,224.68 points; the S&P 500 fell 1.4% to 6,625.38; and the Nasdaq Composite declined 1.5% to 22,152.42.

Fed holds rates steady

As anticipated, the Federal Reserve kept interest rates unchanged and signaled just one rate cut this year. The central bank noted that the economic impact of the ongoing conflict in the Middle East remains “uncertain.”

The Fed’s latest decision comes at a time when inflation in the United States remains well above target and the labor market is showing mixed signals. The war with Iran has further complicated the outlook for policymakers, with Brent crude—the global oil benchmark—surging nearly 50% since the U.S. and Israel launched strikes on Iran.

Against this backdrop, U.S. gasoline prices have climbed to their highest levels since October 2023.

The Federal Open Market Committee (FOMC) kept the federal funds rate unchanged in the 3.50%–3.75% range for a second consecutive meeting, after cutting rates by a total of 75 basis points late last year.

“Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have been modest, and the unemployment rate has changed little in recent months. Inflation remains somewhat elevated,” the FOMC said in a statement. “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated. The implications of developments in the Middle East for the U.S. economy are uncertain. The Committee is attentive to the risks to both sides of its dual mandate.”

Producer inflation comes in above expectations

Before the market open, data from the U.S. Bureau of Labor Statistics showed that the Producer Price Index (PPI) rose 0.7% month-over-month in February, while the annual rate reached 3.4%, driven primarily by higher service costs. The February increase exceeded both January’s 0.5% gain and market expectations of a 0.3% rise.

Meanwhile, core PPI increased 0.5% month-over-month and 3.5% year-over-year, also coming in above consensus estimates.

These figures follow earlier readings that were broadly in line with expectations for consumer and producer prices in January and February. However, the latest data suggest that inflation was already a persistent issue before the sharp rise in oil prices in March due to the war with Iran.

“The PPI confirms what’s becoming clear: the war is causing inflation to spread through the economy, and it won’t be temporary. It will take time to offset the cost pressures stemming from higher oil prices,” said Ross Gerber, president and CEO of Gerber Kawasaki Wealth and Investment Management.