US stocks slump on worries about higher oil prices, inflation and interest rates

NEW YORK (AP) — U.S. stocks slumped Wednesday after a report said inflation was primed to worsen even before the war with Iran caused oil prices to spike. That and comments from the head of the Federal Reserve pushed Wall Street to see less chance of getting the lower interest rates that it loves.
The S&P 500 fell 1.4% and flipped to a loss for the week so far. The Dow Jones Industrial Average dropped 768 points, or 1.6%, and the Nasdaq composite slid 1.5%.
The losses deepened after the Fed 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 by the end of 2026, but Chair Jerome Powell suggested those projections may be worth less than usual because of how much more uncertainty exists about inflation and the economy.
“We just don’t know,” Powell said about what will happen with oil prices, along with how long President Donald Trump’s tariffs will take to work their way fully through the system.
For oil, the price for a barrel of Brent crude has jumped from roughly $70 before the war to $107.38 on Wednesday, 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 prices have soared 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 create a debilitating wave of inflation for the global economy.
A report released Wednesday morning showed inflation pressures were already building before the war began. It said inflation at the U.S. wholesale level unexpectedly accelerated last month to 3.4%.
Such numbers were likely factors in keeping the Fed on hold Wednesday. A cut to rates would give the economy and investment prices a boost, and 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.