Key Takeaways
- Jerome Powell announced the Federal Reserve will maintain current interest rates despite escalating oil prices
- Probability of a rate increase plummeted from 25% to 5% following Powell’s remarks at Harvard
- WTI crude jumped 5.3% to approximately $105 per barrel, breaking above $100 for the first time in over two years
- The Nasdaq declined 0.75% while the S&P 500 shed 0.4% after surrendering morning gains
- Bitcoin pulled back to approximately $66,500, finishing 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 surging crude oil prices linked to escalating tensions involving Iran.
Powell emphasized that inflation expectations remain “well anchored” when looking beyond immediate timeframes. While recognizing the Fed might need to respond eventually, he stressed it’s premature to fully assess the conflict’s economic ramifications.
Bond markets responded favorably to his dovish tone. The 10-year Treasury yield declined nine basis points to settle at 4.35%, while the 2-year yield retreated 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% reading 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 finished 0.4% lower. Weakness in semiconductor stocks pressured broader indices.
Bitcoin similarly relinquished its intraday advances, stabilizing around $66,500 with minimal movement over the trailing 24-hour period.
Crude Prices Continue Upward Trajectory
Energy markets proved to be the primary headwind for risk assets. WTI crude advanced 5.3% Monday, reaching just below $105 per barrel. This represented the first close above the century mark since 2022.
While oil has traded above $100 since the Iranian conflict intensified, Monday’s settlement established a significant psychological benchmark. Supply route disruptions stemming from the geopolitical crisis have propelled prices upward.
President Trump issued warnings via social media Monday, suggesting that failure by Iran to reopen the Strait of Hormuz could trigger U.S. strikes against electrical infrastructure, petroleum facilities, and potentially desalination plants.
Market observers indicate that headline risk from the ongoing conflict continues to dominate trading dynamics. Krishna Guha from Evercore noted attention has pivoted toward growth concerns arising from persistently elevated oil prices.
“The probability of one or more cuts is much higher than the probability of a hike,” Guha stated.
Investor Sentiment Remains Cautious
Chris Senyek from Wolfe Research reported his firm continues holding a defensive market posture. He highlighted the Trump administration’s inconsistent messaging regarding potential escalation or de-escalation of hostilities.
Chris Larkin at E*Trade from Morgan Stanley suggested markets will find it challenging to move beyond current turbulence without a definitive resolution to the conflict.
Fixed income markets are experiencing their worst monthly decline since 2024. Equity markets are tracking toward their weakest monthly performance since 2022.
The White House has indicated willingness to launch additional strikes against Iranian infrastructure as the conflict enters its fifth week without signs of resolution.
Powell stated Monday: “We will eventually maybe face the question of what to do here. We’re not really facing it yet.”
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