Key Takeaways
- Jerome Powell confirmed the Federal Reserve will maintain current interest rates despite escalating oil prices
- Market expectations for a rate increase plummeted from 25% to just 5% following Powell’s remarks at Harvard
- WTI crude oil surged 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%, reversing earlier session gains
- Bitcoin pulled back to approximately $66,500, ending the day essentially unchanged
During a Monday appearance at Harvard University, Federal Reserve Chair Jerome Powell indicated the central bank intends to maintain its current interest rate policy despite accelerating crude oil prices tied to escalating tensions involving Iran.
Powell emphasized that inflation expectations remain “well anchored” when looking beyond immediate timeframes. While acknowledging the Fed might eventually need to respond, he stressed it’s premature to assess the conflict’s complete economic ramifications.
Bond markets responded positively to his statements. 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%.
Market pricing for potential Fed rate increases in 2026 collapsed dramatically. CME FedWatch data revealed probabilities tumbled from 25% recorded Friday to merely 5% by Monday’s close.
Yet despite this encouraging development, equity markets surrendered their morning advances. The Nasdaq closed down 0.75% and the S&P 500 declined 0.4%. Weakness in semiconductor stocks dragged down broader indices.
Bitcoin similarly relinquished its initial gains, stabilizing around $66,500 for essentially flat performance across the 24-hour period.
Crude Oil Continues Upward Trajectory
Energy markets proved to be the primary headwind for risk assets. WTI crude oil advanced 5.3% Monday, reaching just below $105 per barrel. This represented the first closing price above $100 since 2022.
While oil has traded above the $100 threshold since the Iran conflict erupted, Monday’s settlement established a significant new benchmark. The ongoing hostilities have disrupted critical energy transportation channels, driving sustained price appreciation.
President Trump issued warnings via social media Monday, stating that if Iran fails to reopen the Strait of Hormuz, the United States would target electricity generation facilities, oil infrastructure, and potentially desalination plants.
Market analysts suggest trading continues to be dictated by evolving conflict headlines. Krishna Guha from Evercore noted that attention has pivoted toward economic growth concerns stemming from persistently elevated energy costs.
“The probability of one or more cuts is much higher than the probability of a hike,” Guha stated.
Uncertainty Maintains Market Tension
Chris Senyek from Wolfe Research indicated his firm continues holding a defensive market posture. He observed the Trump administration has communicated conflicting messages regarding both escalation and potential de-escalation of the military engagement.
Chris Larkin at E*Trade from Morgan Stanley suggested markets will find it challenging to move beyond current volatility absent a definitive resolution to the conflict.
Fixed income markets are tracking toward their weakest monthly showing since 2024. Equities are similarly positioned for their worst monthly performance since 2022.
The White House has issued threats of additional strikes targeting Iranian infrastructure as the conflict enters its fifth week with no resolution in sight.
Powell commented Monday: “We will eventually maybe face the question of what to do here. We’re not really facing it yet.”
