The Hormuz oil shock

Last week in markets

Updated Q4 2025 GDP data showed the U.S. economy grew more slowly than previously estimated. Annualized fourth-quarter GDP growth was revised down to 0.7%, from 1.4%.

That revision, combined with a softer labor market and sharply higher energy prices, pushed stagflation concerns back to the center of the market conversation. Technology stocks led last week’s declines, followed by financials and consumer discretionary. Energy shares outperformed as oil settled near $100 per barrel.

The S&P 500 fell 1.6% last week, bringing its year-to-date return to negative 2.9%. The 10-year U.S. Treasury yield rose 13 basis points (bps) to 4.28%.

Strait of Hormuz

The dominant story this week is the ongoing conflict involving Iran and the effective closure of the Strait of Hormuz.

That disruption impaired roughly 20% of global oil and gas shipments and sent WTI crude up more than 35% in a matter of days. In the U.S., gasoline prices are already moving higher, rising from a national average below $3.00 to above $3.30 per gallon. If that trend continues, it could pressure household budgets and weigh on consumer spending in the weeks ahead.

Inflation: calm before the storm

The Bureau of Labor Statistics released February CPI on Wednesday. Headline inflation rose 0.3% month over month and 2.4% year over year.

Those readings were broadly in line with expectations, but they capture conditions before the recent escalation in the Middle East. Since then, the jump in energy prices has increased the risk that March inflation data will show renewed pressure. Core CPI, which excludes food and energy, rose 0.2% for the month, suggesting underlying inflation was stabilizing before the latest energy shock.

The Fed

The Federal Reserve is now in a difficult holding pattern. A cooler labor market would normally strengthen the case for rate cuts. Higher energy prices, however, have complicated that path by raising the risk of another inflation impulse. Recent commentary from Fed officials, including Vice Chair Michelle Bowman, points to a more cautious stance as policymakers assess how persistent inflation effects from the current conflict prove to be.

Late Friday, a federal judge dismissed subpoenas tied to what the court described as a “pretextual” criminal investigation into Fed Chair Jerome Powell, citing a lack of evidence and political harassment. That decision offered some support for the Fed’s institutional independence, but the issue remains unresolved. The administration has said it will appeal, and Senator Thom Tillis of North Carolina has indicated he will not move forward on Kevin Warsh until the Powell matter is settled. For investors, that means leadership uncertainty at the Fed may persist longer than markets had assumed, including the possibility that Powell remains in place beyond the next two meetings.

The week ahead

This week’s focal point is the Federal Reserve meeting, which concludes Wednesday. Markets are pricing in a 99% probability that the Fed leaves rates unchanged at 3.5% to 3.75%. The updated dot plot will be especially important because it may show whether policymakers still expect cuts later in 2026 or whether the recent energy shock strengthens the case for rates staying higher for longer.

The Tuesday retail sales report and Wednesday PPI release should offer a clearer read on how consumers and businesses are absorbing higher fuel costs as gas prices move toward $3.50 per gallon.

Beyond the Fed, investors will also watch a full slate of central bank decisions, including the Bank of England, European Central Bank, Bank of Canada, and Bank of Japan. Any surprise from those meetings could drive meaningful moves in the U.S. dollar and global bond yields.