NEW YORK (AP) — U.S. stocks are sinking Wednesday after a report said inflation was primed to worsen even before oil prices began spiking because of the war with Iran.
The S&P 500 fell 1.1% and was on track for its first loss this week. The Dow Jones Industrial Average was down 668 points, or 1.4%, with an hour remaining in trading, and the Nasdaq composite was 1.1% lower.
The losses deepened after the Federal Reserve decided to keep its main interest
rate steady, instead of resuming cuts meant to give the job market and economy a boost. Fed officials are still penciling in one more cut to interest rates by the end of 2026, but Chair Jerome Powell suggested those projections may not be worth as much as usual because of how much more uncertainty there is.
“We just don’t know,” Powell said about what will happen with oil prices, along with how long tariffs will take to work their way through the economy.
Worries had been rising that the Fed could make zero cuts in 2026 given how much oil prices have soared. A barrel of Brent crude has jumped from roughly $70 per barrel to as high as $109.95 on Wednesday. It settled at $107.38, up 3.8% from the day before. The price for a barrel of benchmark U.S. crude got to nearly $99 before settling at $96.32.
Oil and natural gas prices have spiked because the war has disrupted the Persian Gulf's energy industry. Iran’s state television said Wednesday that the Islamic Republic would be attacking oil and gas infrastructure in Qatar, Saudi Arabia and the United Arab Emirates after an attack on facilities associated with its offshore South Pars natural gas field.
If the disruptions keep oil and gas prices high for long, they could send a debilitating wave of inflation crashing into the global economy.
A report released Wednesday morning showed that inflation pressures were already worsening before the war began. It said inflation at the U.S. wholesale level unexpectedly accelerated last month to 3.4%, and those cost increases could hit U.S. households if producers pass them all along.
Such numbers were likely factors in staying the Fed's hand on Wednesday. A cut to rates would have given the economy and investment prices a boost, and President Donald Trump has been angrily calling for them. But lower interest rates would also worsen inflation.
Only one Fed voter wanted to lower rates this time around, and the tally was 11-1 to keep rates steady.
Powell said the rule of thumb has been for the Fed to look through jumps in oil prices, which could prove to be only temporary, but he said that works only if expectations for upcoming inflation don’t spike themselves. He also noted that several Fed officials downgraded their forecasts for rate cuts this year to one from two, even though the overall median Fed official is still calling for one.
That helped send Treasury yields higher in the bond market, along with the higher-than-expected update on inflation at the wholesale level. The yield on the 10-year Treasury climbed to 4.25% from 4.20% late Tuesday and from just 3.97% before the war with Iran started.
Because Treasury bonds are paying more in interest, gold is looking less attractive to some investors. Gold pays its holders nothing, and it dropped back below $5,000 per ounce after falling 2.2% to settle at $4,896.20. It's lower than it was at the start of the war, despite its reputation as a safe haven for investors looking for safety during uncertain times.
On Wall Street, Macy’s jumped 5.1% after reporting stronger profit and revenue for the latest quarter than analysts expected. The retailer behind Bloomingdale’s and Bluemercury is in the midst of a turnaround plan to drive growth under CEO Tony Spring.
But General Mills fell 2.8% after the company behind the Pillsbury, Progresso and Wheaties brands reported a weaker profit for the latest quarter than analysts expected. CEO Jeff Harmening is investing in its brands in hopes of driving growth, and it’s sticking with its forecast for profit over the full fiscal year.
In stock markets abroad, indexes fell in Europe following a stronger finish in Asia. They reacted to the rise in the price of crude, which accelerated as trading headed westward around the world.
Tokyo’s Nikkei 225 rallied 2.9% after the government reported exports in February were higher than expected. South Korea’s Kospi leaped 5%.
___
AP Business Writers Chan Ho-him and Matt Ott contributed.
