Fed "On Hold" Amid Geopolitical Risk

Why it matters

The recent Producer Price Index (PPI) report for January showed a 0.5% monthly increase, surpassing forecasts of 0.3%. On an annual basis, producer prices rose 2.9%, also higher than the 2.6% that was anticipated. Driving the wholesale inflation was a 0.8% jump in the cost of services, the largest increase since July of last year. Core PPI, which strips out volatile food and energy categories, surged 0.8% for the month, significantly above the 0.3% consensus expectation. The conflict in Iran introduces significant volatility, primarily through energy markets. A major escalation could disrupt the Strait of Hormuz, a critical channel for global oil supply, potentially impacting a third of the world's oil output and putting upward pressure on inflation. The Federal Reserve's current benchmark interest rate sits in a target range of 3.5% to 3.75%. This follows three consecutive quarter-point rate cuts in late 2025, which were aimed at countering signs of a cooling labor market at the time. The announced quantitative easing (QE) injection marks a continued reversal from the policy of "quantitative tightening" that began in March 2022. That tightening period saw the Fed's balance sheet shrink by over $2.2 trillion before the policy shifted back to asset purchases in December 2025. While traders have lowered their expectations, some economists still forecast up to three rate cuts in 2026. However, others, like those at J.P. Morgan Global Research, anticipate that the central bank will keep rates on hold for the remainder of the year.

Key numbers

• The central bank is also scheduled to inject $8.01 billion into the economy tomorrow as part of its QE program.
• The recent Producer Price Index (PPI) report for January showed a 0.5% monthly increase, surpassing forecasts of 0.3%.
• On an annual basis, producer prices rose 2.9%, also higher than the 2.6% that was anticipated.
• Driving the wholesale inflation was a 0.8% jump in the cost of services, the largest increase since July of last year.

What happens next

• A major escalation could disrupt the Strait of Hormuz, a critical channel for global oil supply, potentially impacting a third of the world's oil output and putting upward pressure on inflation.
• The Federal Reserve's current benchmark interest rate sits in a target range of 3.5% to 3.75%.
• Morgan Global Research, anticipate that the central bank will keep rates on hold for the remainder of the year.

Sources

• "even more on hold"
• recalibrated expectations
• inject $8.01 billion
• The recent Producer Price
• Driving the wholesale
• Core PPI, which strips
• A major escalation could
• The Federal Reserve's
• This follows three consecutive
• The announced quantitative
• That tightening period
• While traders have lowered
• However, others, like

Quick answers