U.S. stocks continued their decline in late trading on Wednesday, with the Dow Jones Industrial Average falling by 500 points. The drop came as key inflation data came in higher than expected and the Federal Reserve decided to keep the benchmark interest rate unchanged.
The Dow Jones Industrial Average dropped 500.85 points, or 1.07%, to close at 46,492.41. The Nasdaq Composite fell 182.45 points, or 0.81%, to 22,297.08, while the S&P 500 index declined by 52.83 points, or 0.79%, to 6,663.26.
The Federal Reserve maintained the federal funds rate within the range of 3.5% to 3.75%. In its post-meeting statement, the central bank noted that "the impact of developments in the Middle East on the U.S. economy remains uncertain." However, the Fed indicated that it still anticipates one interest rate cut later this year.
Earlier on Wednesday, the Producer Price Index, which measures changes in wholesale prices, showed a 0.7% month-over-month increase for February. This figure was significantly higher than the 0.3% rise forecasted by economists surveyed by Dow Jones. The report indicated that inflation was already unstable even before the outbreak of the Iran conflict—an event that has heightened concerns about stagflation driven by rising oil prices.
"This higher-than-expected number is linked to tariffs," stated Todd Schoenberger, Chief Investment Officer at CrossCheck Management. He pointed out that costs for metals, industrial inputs, and manufacturing are all rising. "This is structural inflation, not transitory, and it is likely to influence monetary policy through at least the end of the third quarter."
"Combined with the hot energy prices we've seen since the start of the Iran conflict—which are not yet reflected in these reports—Wall Street is bracing for rapidly rising prices that will clearly be passed on to consumers," Schoenberger added.
The international benchmark Brent crude futures rose by 3% to $107 per barrel. U.S. oil prices were lower but remained elevated, with West Texas Intermediate crude futures trading at $96 per barrel.
Markets continued to monitor the latest developments in the Middle East. Reports indicated that Israel had attacked Iran's largest natural gas processing facility located in Bushehr Province. Iran has also threatened to target oil facilities in Saudi Arabia, the United Arab Emirates, and Qatar. This week, Iran launched a new wave of attacks on energy infrastructure in the UAE, raising concerns about disruptions to crude oil and fuel transportation.
"Clearly, the market is pricing this conflict as temporary," said Tim Urbanovich, Chief Investment Strategist at Innovator Capital Management. "We consider that our base-case scenario as well. But we also want to remain cautious because the reality is, the longer oil prices stay at elevated levels, the greater the risk that inflation becomes entrenched."
U.S. President Donald Trump issued a 60-day waiver for the U.S. shipping law known as the Jones Act in an effort to stabilize oil prices. In a statement, White House Press Secretary Caroline Levitt said that the temporary suspension of the act "will allow important resources such as oil, natural gas, fertilizers, and coal to flow freely to U.S. ports for 60 days."
In the previous trading session, oil prices had risen after President Trump posted on Truth Social that the U.S. did not need help from NATO allies in the Middle East. Earlier in the week, the president had suggested the possibility of forming a coalition to help protect ships attempting to pass through the Strait of Hormuz, although some countries appeared "less enthusiastic" about the idea.
"With greater uncertainty today, I believe we are in a higher volatility environment," commented Anshul Sharma, Chief Investment Officer at Savvy Wealth.
"If oil prices remain at these levels... we know it will seep into the economy," he added. "That will make the Federal Reserve's job of balancing its mandates even more difficult."
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