Investors are anxious about whether the central bank will change course on rate cuts as geopolitical turmoil and tariffs pose inflation risks.
If there is one story to watch on Wednesday, it will be this: what Jay Powell, the Fed chair, says about the economic impact of conflict in the Middle East and how it might change the central bank’s forecasts about interest rates in the coming months. We also take a look at the fallout of the Musk-Trump breakup for an overlooked stakeholder: China.
Trump and Iran loom over the Fed
President Trump’s increasingly bellicose remarks about Iran over the past 24 hours — he’s called for the country’s “unconditional surrender” as it exchanges barrages with Israel — may not exactly be scaring investors. But it has thrown the Fed a curveball.
The central bank is widely expected to hold interest rates steady on Wednesday. Markets will be watching closely the Fed’s rates forecast and Jay Powell’s news conference. High on the agenda will be questions about whether the Fed chair sees conflict in the Middle East and higher oil prices creating a new inflation risk that forces the central bank to keep rates higher for longer.
A recap: In March, the Fed signaled that it would lower its benchmark lending rate by half a percentage point this year. (Trump, who has repeatedly chided Powell for not cutting rates sooner, argues that two full percentage points of cuts are warranted.)
A lot has happened since then. Moody’s cut America’s triple-A credit rating, citing Washington’s inability to manage the nation’s fiscal hole. Nonpartisan congressional analysts estimate that the House version of Republicans’ huge policy bill would grow the national debt by $3.4 trillion and potentially jolt the market for Treasury notes and bonds.