Investors face cloudier US Fed rate view as Iran conflict grips markets

Investors are facing a cloudier view of US monetary policy in the coming months, with a war in the Middle East muddying the outlook for a Federal Reserve that already was grappling with above-target inflation and an uneven labour market.

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The Fed last held interest rates steady for the second consecutive meeting, as markets had expected, and stuck to its prior projections for one cut in 2026. But the central bank also forecast higher inflation this year than it had previously, amid the surge in oil prices stemming from the conflict in Iran, while Fed Chair Jerome Powell said it was too soon to know the ultimate fallout for the economy. Investors who were banking on near-term rate cuts were reconsidering. Amid the Middle East turmoil, some were left eyeing places to hide, including long-dated bonds, commodities or dividend-paying equities.

“The market is trapped amidst a whole lot of reasons to be nervous, a lot of reasons to be uncertain, including what is happening at the Fed,” said Mark Spindel, chief investment officer at Potomac River Capital.