The Top Line
Stocks edged higher for a second day as investors tried to look past the U.S.-Iran conflict and rising oil prices. Today is the one that matters — the Federal Reserve wraps up its two-day meeting this afternoon and will tell us how it sees the economy.
We are operating in a late-cycle stagflationary transition regime characterized by persistently elevated inflation, a deteriorating growth impulse, and an exogenous energy shock that has materially complicated the Federal Reserve's policy calculus. The U.S.-Iran conflict, which ignited on February 28, drove WTI crude above $95 and Brent briefly through $100, injecting a supply-side inflation shock into an economy where core CPI was already flatlined at 2.5% YoY as of February — well above the Fed's 2% target and showing no sequential improvement since late 2025. Meanwhile, Q4 GDP was dramatically revised lower (per CNBC's March 13 report), undermining the prior consensus that the expansion remained firmly on track. The structural tension is not ambiguous: the Fed faces simultaneously rising energy-driven headline inflation expectations and softening real growth, a combination that forecloses both rate cuts and hikes with equal force, trapping policy in a data-dependent holding pattern that the market must now price through today's SEP and dot plot.
Inflation
The Federal Reserve — the central bank that controls interest rates to keep the economy stable — wants inflation running at around 2% per year. Right now it is running closer to 3%, and that gap matters for your borrowing costs on everything from mortgages to car loans.
The stickiest part is services — think rent, insurance, and healthcare — which tend to move slowly even when other prices cool. And now a new problem has arrived: oil prices above $100 a barrel are pushing up the cost of gas, shipping, and anything else that requires fuel. That adds pressure before the old inflation problem is even solved.
Until both of those cool down meaningfully, the Fed has little room to cut rates. Markets right now are only pricing in one small rate cut for the entire year — and not until October at the earliest.
Key Takeaway
Inflation was already stuck above target — and surging oil prices are pushing the problem in the wrong direction.
The February CPI report, released March 11, arrived as the last clean inflation reading before the Iran war's energy shock fully registered in prices. Headline CPI printed +0.3% MoM and +2.4% YoY — in line with consensus — while core CPI came in at +0.2% MoM and +2.5% YoY, matching expectations and marking the lowest annual core rate since March 2021. The deceleration from the 2.6% December and January core readings is modest progress, but the trajectory has effectively flatlined: annual core CPI has held in the 2.4%–2.5% band for multiple consecutive months, offering no evidence of a durable return to 2%. Shelter, which remains the largest CPI component at roughly 34% of the basket, posted +0.2% MoM with rent rising just 0.1% — the smallest monthly gain since January 2021 — and the annual shelter rate cooling to 3.0%. While encouraging, owners' equivalent rent (OER) is still running at +3.2% YoY and, at more than one-quarter of the full CPI, will remain a structural ceiling on core disinflation for multiple additional quarters.
The critical analytical challenge entering today's FOMC decision is the bifurcation between the backward-looking February data and the forward-looking energy shock. February's figures predated the conflict by approximately 10 days, meaning no WTI or gasoline price impact is yet visible in the released data. Economists at the Carson Group have already warned that March CPI, due April 10, will show the energy surge clearly in the headline print, with some projections placing March headline CPI in the 2.6%–2.9% range and year-end 2026 headline CPI potentially as high as 3.5% if the conflict persists. This bifurcation is significant: the Fed's preferred measure — core PCE — was last reported at approximately 2.8% YoY for January 2026 (February PCE releases later in March), maintaining a 80-basis-point gap above target. The ISM Manufacturing prices-paid component surged 11.5 points to 70.5 in February, signaling that upstream cost pressures were already building before the oil shock arrived.
The interaction of sticky core services inflation with a potentially transient but sharp energy shock creates the textbook stagflationary dilemma. If the Fed anchors on the energy component as temporary and maintains its hold with a dovish tilt, it risks reinforcing inflation expectations should the conflict prove persistent. If it signals hawkish intent, it risks accelerating any growth slowdown that the energy shock is already beginning to impose on consumption through higher gasoline and utility costs. The 30-year fixed mortgage rate spiked from just over 6% to nearly 6.5% in the two weeks following the conflict's onset, per Kiplinger, adding a second-order tightening channel through housing affordability that the Fed's models must now explicitly absorb.
Key Takeaway
The Fed enters today's decision with core PCE at ~2.8%, core CPI at 2.5%, and an energy shock not yet in the official data — a combination that makes any policy move inadvisable. The committee is near-certain to hold at 3.50%–3.75% (CME FedWatch: 92%+ probability), while the SEP and dot plot will carry the informational weight: if the median dot shifts from one cut to zero cuts in 2026, markets will interpret that as a hawkish signal with meaningful rate implications.
Risk and Positioning
Think of the VIX — often called the market's fear gauge — as a weather forecast for turbulence. Right now it sits near 22, which is meaningfully above the "calm" range of 12–16 but well below the panic levels seen in early March when the Iran conflict first erupted. In other words: investors are on edge, but they are not running for the exits.
The dollar has barely moved, which suggests money is not flooding out of the U.S. into safer corners of the globe. And stocks have now risen two days in a row after hitting four-month lows last week — a tentative sign that the worst of the fear may have passed. Today's Fed decision, though, could quickly change the mood if it sounds more worried about inflation than markets expect.
Key Takeaway
Markets are anxious but stabilizing — the Fed's message this afternoon is the next big test of that calm.
Tuesday's session delivered a constructive risk-on signal, with the S&P 500 adding +0.25% to close at 6,716.09 as equity investors extended the rebound from the four-month lows struck last week, even as oil prices resumed their advance and WTI crossed back above $95 on reports of fresh strikes targeting the Majnoon oil field in Iraq and a UAE natural gas facility. The VIX declined 4.00% to close at 22.57, a meaningful improvement from the March 6 intraday peak of approximately 29.49 — a level that represented the highest volatility reading since the regional banking stress of late 2025. The VIX at 22.57 sits in what markets are pricing as "elevated but not systemic" territory: it is well above the 13–15 equilibrium range that characterized late 2025 calm, but the decline from the panic peak to current levels reflects a measured repricing rather than a wholesale return to complacency. Prediction markets are assigning only a 10.5% probability to an effective Strait of Hormuz closure through March 31, which partially explains why implied volatility is retreating even as realized geopolitical risk remains elevated — markets are pricing the scenario distribution, not the worst case.
The equity rebound is notable for what it is not: broad-based participation. Large-cap technology led the session, with the QQQ modestly outpacing the S&P 500 as investors rotated into growth rather than fleeing risk, while small caps tracked closely behind. The Russell 2000 posted a comparable gain to the large-cap benchmark, but given small caps' elevated sensitivity to domestic economic conditions and credit costs, that relative tracking should be monitored carefully — any deterioration in credit availability or consumer credit quality would disproportionately impact small-cap earnings. The DXY at 99.56 (−0.15%) continues its softening from the ten-month highs reached last week, providing a marginal tailwind to earnings translation for multinationals but reflecting reduced safe-haven premium demand for the dollar as the most acute phase of the conflict shock absorbs. The dollar's positioning is internally inconsistent with 10Y yields remaining at 4.20%: if rates are stable and the conflict is ongoing, the dollar's mild weakening likely reflects position unwinding by traders who bought the initial safe-haven surge rather than a fundamental shift in the macro view.
The most important risk anomaly entering today's session is the VIX/equity divergence. Equity indices have recovered to within striking distance of their pre-conflict levels, yet the VIX remains 50%+ above its late-2025 equilibrium range, suggesting that the options market has not fully endorsed the equity recovery narrative. This divergence — rising stocks alongside persistently elevated implied volatility — typically resolves in one of two directions: either equities pull back to validate the options market's concern, or implied volatility compresses sharply as the event risk (today's FOMC decision) resolves without a hawkish shock. Today's SEP is the most direct near-term catalyst for that resolution, and positioning into the decision appears optimistic without being dangerously crowded.
Key Takeaway
The VIX at 22.57 has compressed materially from the 29.49 March 6 peak but remains elevated versus late-2025 levels of ~13–15, signaling residual geopolitical and policy uncertainty. The primary tail risk is a hawkish SEP surprise — a median dot shift to zero 2026 cuts — which we assign a 30% probability and estimate would generate a 2%–3% SPX selloff intraday.
Sector and Cross-Asset Analysis
Oil and gas companies were the top performers on Tuesday, rising about 1% as crude prices climbed back above $100 a barrel. That is good news if you own energy stocks, but it is a headwind for almost everything else in the economy. Travel companies — airlines, hotels, and booking platforms — had a surprisingly strong day, helped by Delta raising its earnings outlook and investors betting that the conflict will not derail vacation season.
Banks and financial companies also gained ground alongside a broader rally. The one notable weak spot was tech software — companies that sell business software tools have sold off sharply this year as investors worry that artificial intelligence could disrupt their business models. Overall, every sector of the S&P 500 finished in positive territory Tuesday, a rare sign of broad market confidence.
Key Takeaway
Oil companies are winning from the conflict; travel companies surprised to the upside; broad gains suggest cautious optimism is returning.
Tuesday's session revealed a market structure defined by selective recovery rather than broad re-engagement. Large-cap technology and communication services led the advance, consistent with Nvidia's GTC conference narrative — CEO Jensen Huang projected $1 trillion in AI chip orders by 2027, doubling year-ago projections for Blackwell and Vera Rubin systems — which provided a concrete earnings-confidence anchor in a session dominated by macro uncertainty. The Nasdaq Composite gained approximately +1.22% versus the S&P 500's +0.25%, confirming that the index's recent outperformance relative to the equal-weight S&P is intensifying: AI infrastructure spend is providing a growth premium that investors are willing to pay even in a stagflationary environment, treating it as a secular tailwind insulated from cyclical deterioration. Meanwhile, defensive sectors — Utilities, Staples, and Healthcare — underperformed as the broad risk-on impulse diminished their safe-haven premium, at least temporarily. Energy stocks, which have been significant beneficiaries of the Iran conflict's crude price surge, were mixed as oil pulled back briefly before resuming higher, creating intraday cross-currents in XLE positioning.
Cross-asset dynamics on Tuesday reinforced the complexity of the current regime. The dollar softened for a second consecutive session (DXY −0.15% to 99.56) even as oil prices remained near cycle highs, breaking the tight conflict-driven positive correlation between crude and the greenback that dominated in early March. Treasury yields edged modestly lower, with the 10Y settling at approximately 4.20% — down about 2bps — as bond investors found equilibrium ahead of the FOMC decision rather than repricing aggressively in either direction. The 2Y fell to approximately 3.665% from 3.68% on Monday, and the 30Y came in to 4.855%. This yields a 2s10s spread of approximately +53bps, a steepening from earlier in the year that is consistent with markets pricing a longer hold by the Fed at the short end while modestly pricing in energy-driven inflation expectations at the long end. Gold remains near the $5,000 level (briefly trading above that threshold), continuing to serve as the primary safe-haven beneficiary of the conflict — outperforming the dollar as a store of value. International equities, including the DAX (+0.21%), CAC 40 (+0.55%), and FTSE 100 (+0.60%), all advanced modestly but lagged the U.S. recovery, reflecting European exposure to energy cost pass-through and the Iran conflict's direct shipping and supply chain disruptions.
One structural cross-asset contradiction demands scrutiny: equity asset managers faced mixed premarket conditions as investors continued to assess risks on private credit positions amid a wave of redemption caps, per Trading Economics. If private credit stress is building beneath the public market surface — the natural consequence of elevated rates on floating-rate leveraged loans — the public equity recovery may be treating it as isolated rather than systemic. The high-yield bond market will be a critical signal to monitor in today's session; any material spread widening in HY concurrent with equity strength would be a significant warning sign that the risk-on trade lacks credit confirmation.
Key Takeaway
Leadership remains concentrated in AI-infrastructure names (Nasdaq +1.22% vs. S&P +0.25%), reflecting a growth premium that the market is assigning to secular AI capex independent of macro cyclicality. Equal-weight participation lagged materially, defensive sectors underperformed, and gold near $5,000 signals that sophisticated investors are hedging the equity recovery rather than endorsing it unconditionally.
Economic Data & Events
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5:00 AM MT
MBA Mortgage Index (measures how many people applied for a mortgage last week — a real-time read on housing demand)
Moderate
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6:30 AM MT
Producer Price Index (measures what businesses are paying for goods before those costs reach consumers — an early warning sign for inflation)
High Impact
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12:00 PM MT
Fed Rate Decision + Economic Projections (the Federal Reserve announces whether it is raising, cutting, or holding interest rates — and shows where it expects rates to go from here)
High Impact
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12:30 PM MT
Fed Chair Powell Press Conference (Powell explains the Fed's thinking in plain English — often the most market-moving hour of the quarter)
High Impact
The Fed is almost certain to leave rates unchanged today. What markets are really watching is the updated forecast — specifically, whether Fed officials still expect to cut rates once this year or have quietly given up on cuts entirely. Powell's press conference at 12:30 PM MT will be where we learn how seriously the Fed views the oil price surge as an inflation threat. Expect the market to move sharply in one direction or the other around noon.
Key Takeaway
Today is the most important Fed day of the quarter — noon MT is when markets get their answer on rates and the economy.
Today's Calendar
- 12:00 PM MT — FOMC Rate Decision — High Impact
- Consensus: Hold at 3.50%–3.75% | Previous: Hold (January 2026)
CME FedWatch: 92%+ probability of hold
- 12:00 PM MT — Summary of Economic Projections (SEP) & Dot Plot — High Impact
- Consensus: Median dot maintains 1 cut in 2026
Key watch: Any shift toward 0 cuts would be a hawkish surprise; shift to 2 cuts would be dovish catalyst
- 12:30 PM MT — Fed Chair Powell Press Conference — High Impact
- Topic: Policy response to Iran oil shock, inflation trajectory, and rate path guidance | One of Powell's final press conferences before his May 2026 term expiry
- 6:30 AM MT — PPI — Strong Impact
- Consensus: 0.3% | Previous: 0.5%
- 5:00 AM MT — MBA Mortgage Market Index — Moderate Impact
- Consensus: Unavailable | Previous: 389.6
mortgage rate spike to ~6.5% post-conflict likely to weigh on builder sentiment
Week Ahead
Today's FOMC decision and SEP are the dominant macro events of the quarter, with Powell's press conference likely determining short-term market direction. Later this week, the Producer Price Index (Thursday) will provide the first forward-looking inflation read post-conflict onset, and Thursday's Jobless Claims will be monitored for early signs of labor market softening. Industrial Production and Pending Home Sales round out the week. There are no major earnings reports of consequence scheduled this week, keeping the macro-policy regime as the singular market driver.
What We're Watching
Monetary Policy: SEP Dot Plot Pivot Risk
Today's dot plot is the critical variable. A median shift from one to zero 2026 cuts — plausible given the energy inflation shock — would reprice the short end materially. Watch the 2Y yield: a post-announcement move above 3.75% signals a hawkish read. Powell's press conference language on 'transitory' vs. 'persistent' for energy will determine whether markets treat the shock as a policy-neutral pass-through or a durable inflation threat.
Rates: 4.20% 10Y as the Regime Pivot Level
The 10Y yield has stabilized at 4.20% after spiking to 4.26% at the conflict's peak — a level that historically triggers equity multiple compression when accompanied by a VIX above 20. A hawkish SEP could push the 10Y back through 4.26% resistance toward 4.40%. Conversely, if Powell signals patience and the conflict narrative softens, 10Y breaking below 4.10% would be a meaningful duration tailwind for long-end bonds and growth equities.
Equities: AI Capex Anchor vs. Energy Margin Drag
Nvidia's $1 trillion revenue projection by 2027 is providing a growth confidence anchor that is partially insulating tech from macro deterioration. The key risk is that rising energy costs — WTI at $95+ — compress margins in transportation, industrials, and consumer discretionary without the AI premium to offset. Watch XLE vs. QQQ spread: divergence will signal which macro narrative is winning the rotation battle heading into Q1 earnings season beginning in April.
Key Risk: Strait of Hormuz Escalation
Prediction markets assign only a 10.5% probability to an effective Strait closure through March 31, but ~1,100 ships remain trapped in the Persian Gulf with safe passage still disrupted. A credible closure scenario would push Brent through $110 and materially re-price the stagflation probability. Watch for allied nation responses to Trump's request for Hormuz security support — failure to secure coalition commitment would shift the conflict risk premium higher into next week.
The Bottom Line
The Fed holds its cards until noon Mountain Time — after that, expect the market to move quickly in one direction or the other. A Fed that signals patience will likely push stocks higher; one that signals rates are staying higher for longer will send them lower.
Treasuries are consolidating near 4.20% on the 10Y after the violent 30bp surge from 3.96% in late February to a 4.26% peak during the conflict's first week, with the range likely to narrow further as the FOMC decision absorbs uncertainty at 2PM ET (noon MT). Equity breadth remains selectively constructive — the Russell 2000's relative parity with the S&P 500 is encouraging, but the Nasdaq's 100bps outperformance gap signals that leadership concentration in AI-infrastructure names is tightening, not broadening. Today's session will almost certainly be directionally determined by the SEP dot plot: a hold with one-cut-median confirms base case and allows the equity recovery to extend, likely testing SPX resistance near 6,750–6,800; a hawkish zero-cut dot shift re-risks the 6,550–6,600 support zone. Watch the 2Y yield as the fastest-moving signal — a post-FOMC move above 3.75% on the 2Y would confirm the market is pricing out cuts and re-pricing the near-term equity multiple accordingly.
Disclosure — AI-Assisted Content & Regulatory Notice
This briefing was drafted with the assistance of artificial intelligence tools. All content has been reviewed and approved by Thomas MacPherson, Investment Adviser Representative (Series 65) and Chief Compliance Officer, River Rose Financial, LLC, prior to publication. AI systems may produce errors, omissions, or outdated information; readers should independently verify data.
Market Currents does not constitute an investment advisory relationship, does not create a fiduciary duty, and does not include personalized investment advice. Subscribers should not rely on Market Currents as a substitute for individualized financial advice. This briefing is for informational purposes only. Market conditions change rapidly; all data and projections are subject to revision without notice.
River Rose Financial, LLC is a registered investment adviser with the State of Colorado. Registration does not imply a certain level of skill or training. Past performance is not indicative of future results. All investment strategies involve risk, including possible loss of principal.
