Outlook The current conflict in the Middle East has triggered the most severe supply shock in the history of the global oil market.1 Transit through the Strait of Hormuz previously averaged 20 mb/d (million barrels per day). This has slowed to a near-halt. With limited bypass options, Gulf nations have slashed production by over 10 mb/d. Counterbalancing a portion of this loss is an increase in production from non-OPEC nations - bringing total global supply to just under 101 mb/d. This represents a shortfall of 4 to 5 mb/d based on global oil demand. As a result, the 32 nation members of the International Energy Agency (IEA) decided to release 400 million barrels of oil from reserves, which is the biggest release ever. This release fills the demand shortfall for approximately 100 days - or mid-June.2 Oil and natural gas prices have risen and are positioned to continue to climb without a resolution to the supply issues. This would likely have an inflationary impact on the economy.3 As a result, we suspect uncertainty to rise in the market until it becomes clearer that the Strait of Hormuz will soon reopen. For long-term investors, maintaining your long-term strategic allocations makes sense. We remain cautiously optimistic on a near-term resolution to the current military operations. However, if the Strait remains closed as we get closer to mid-June, we believe heightened uncertainty could remain in place. . . . U.S. markets navigated another volatile week, shaped by persistent geopolitical tensions, shifting expectations for Federal Reserve policy, and inflation readings that surprised to the upside. Federal Reserve FOMC Meeting: A Pause Amid Elevated Uncertainty The Federal Reserve’s March 18 FOMC meeting served as the central event of the week. As widely expected, the Fed held the federal funds rate steady at 3.50%–3.75%, marking its second consecutive pause of 2026. During the meeting, officials emphasized that elevated uncertainty surrounding the war in Iran, particularly its influence on energy markets, continues to pose significant risks to the economic outlook. In its post meeting statement, the Fed noted that overall economic uncertainty “remains elevated,” as the full impact of the conflict on inflation and consumer behavior is still unclear.4 The committee voted 11–1 to maintain current rates, with only a single dissent in favor of a 25 basis point cut. Policymakers acknowledged signs of softening in labor market indicators even as broader economic activity remains generally solid despite geopolitical pressures. In the press conference, Chair Jerome Powell reinforced a cautious tone, stating that “nobody knows” the extent to which the conflict will affect the economy, especially as higher gas prices could eventually weigh on consumer spending. Ultimately, the meeting underscored the Fed’s data-dependent approach and its preference to maintain stability while awaiting clearer signals, noting that it is still “too soon to know” the full economic consequences of the Middle East conflict.5 Economic Projections: Inflation Expectations Revised Higher Alongside the rate decision, the Fed released updated economic projections that reflect evolving inflation dynamics. Officials now expect:6 - Headline inflation to reach 2.7% by the end of 2026, up from the prior 2.4% estimate.
- Core inflation (excluding food and energy) to finish at 2.7%, compared to the previous projection of 2.5%.
- One rate cut in 2026 remains the median forecast, though the odds and timing of cuts have weakened as geopolitical-driven energy inflation uncertainty clouds the outlook.
These upward revisions reflect the Fed’s acknowledgment that the spike in oil prices may exert more persistent pressure on inflation than initially anticipated. The conflict’s impact on the Strait of Hormuz continues to raise the risk of higher energy costs feeding through to inflation expectations. The projections highlight the difficult task policymakers face as they work to navigate rising inflation pressures while also contending with signs of cooling economic activity and an increasingly uncertain global environment. Hotter-Than-Expected PPI: Inflation Data Intensifies Pressure Markets also absorbed a key inflation reading mid-week that highlighted increasing cost pressures. The Producer Price Index (PPI) for February rose 0.7% month over month, significantly above expectations of 0.3%. This hotter-than-expected reading added to investor concerns that inflation could remain elevated longer than anticipated.7 The report showed wholesale inflation accelerated to 3.4% year over year, up from estimates of 2.9%. The rising energy and goods costs were major contributors to the jump, showing how oil price shocks affect the broader supply chain. Market Performance With the geopolitical backdrop keeping energy prices unstable and inflation pressures building, major indices struggled to maintain traction. The S&P 500, Dow Jones, and Nasdaq Composite all posted further declines, marking the fourth straight week of losses for the S&P 500. The Fed’s shift in expectations also led to rising Treasury yields. The 10‑year yield rose toward 4.39%, its highest level since mid‑2025, and the 2-year up to 3.88%.
[1] https://www.iea.org/reports/oil-market-report-march-2026 [2] https://www.rnz.co.nz/news/world/589320/iea-announces-record-release-of-strategic-stocks-in-response-to-iran-war-oil-price-surge [3] https://hbr.org/2026/03/the-oil-shock-is-here-and-were-just-beginning-to-feel-it [4] Federal Reserve issues FOMC statement [5] The Fed - March 17-18, 2026 FOMC Meeting [6] Summary of Economic Projections, March 18, 2026 [7] Producer Price Index News Release summary - 2026 M02 Results | 
