Wall Street climbed to fresh record highs overnight as artificial intelligence and semiconductor stocks powered another rally, helping investors look beyond rising inflation and growing expectations that US interest rates could remain higher for longer. The benchmark S&P 500 and tech-heavy Nasdaq Composite both closed at record highs on Wednesday after a sharp rebound in chipmakers and major AI-related technology companies.

Key highlights

• S&P 500 and Nasdaq closed at new record highs
• AI and semiconductor stocks led the rally
• US inflation data came in hotter than expected
• Markets increasingly expect rates to stay elevated
• Australian tech and super funds exposed to Wall Street gains

AI And Chip Stocks Drive Another Rally

Technology and semiconductor shares again dominated market momentum.

The PHLX Semiconductor Index rebounded strongly after earlier weakness, while six of the so-called “Magnificent Seven” mega-cap technology stocks gained between 1.4% and 3.9%.

Shares in NVIDIA rose 2.3%, while Tesla climbed 2.7%.

Analysts said investor enthusiasm around artificial intelligence continues overpowering concerns about inflation and monetary tightening.

Inflation Pressures Continue Building

Fresh US producer price data showed inflation remains a major concern.

Producer prices jumped 1.4% last month, the biggest monthly increase in four years, as higher oil prices linked to disruptions in the Strait of Hormuz flowed deeper into the economy.

The data reinforced expectations that the US Federal Reserve may delay any interest rate cuts.

Boston Federal Reserve President Susan Collins even warned another rate hike remains possible if inflation pressures fail to ease.

Kevin Warsh Era Begins At The Fed

Markets are also adjusting to the arrival of Kevin Warsh as the new Federal Reserve chair after his Senate confirmation.

Investors are closely monitoring whether Warsh’s reform agenda could eventually reshape interest rate policy and central bank communication.

Trump-Xi Summit Draws Market Attention

US President Donald Trump arrived in Beijing alongside Nvidia CEO Jensen Huang and billionaire entrepreneur Elon Musk for high-stakes talks with Chinese President Xi Jinping.

The summit is expected to cover trade, artificial intelligence, semiconductors and geopolitical tensions.

Investors hope the meeting may help stabilise US-China economic relations and ease pressure on global technology supply chains.

Major Movers On Wall Street

Several companies posted strong gains during the session.

• Ford Motor Company surged 13.2% after analysts highlighted its energy business and battery partnerships
• AI cloud company Nebius Group jumped 15.7%
• Coinbase and Strategy fell as cryptocurrency prices weakened

What This Means For Australia

Australian investors remain heavily exposed to Wall Street through superannuation funds, technology shares and global investment markets.

Strong gains in AI-related companies could continue supporting Australian tech sentiment, particularly among firms linked to data centres, cloud infrastructure and semiconductors.

However, persistent US inflation and higher-for-longer interest rates may also pressure borrowing costs and valuations globally.

Australian markets are especially sensitive to US Federal Reserve policy because it influences capital flows, risk appetite and currency movements worldwide.

Investors Betting AI Boom Still Has Momentum

Despite mounting inflation risks and geopolitical uncertainty, investors continue pouring money into AI and semiconductor stocks.

Markets are now watching whether the AI-driven rally can continue if inflation pressures intensify further or central banks remain aggressive on interest rates.

FAQs

Q1: Why did Wall Street hit new record highs?

Strong gains in AI and semiconductor companies helped lift major US indexes.

Q2: What happened with US inflation?

Producer prices rose more than expected, largely driven by higher energy costs.

Q3: Why are AI stocks so important?

Artificial intelligence remains one of the biggest growth themes driving global markets and technology investment.

Q4: Why does this matter for Australia?

Australian investors, super funds and technology shares are highly influenced by Wall Street performance and US interest rate expectations.

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US consumer inflation is expected to rise strongly again in April as surging oil and fuel prices linked to the Iran conflict continue feeding into the global economy. The latest inflation figures are now strengthening expectations that the US Federal Reserve will keep interest rates higher for longer, a move that could ripple through global markets and impact Australia’s economy.

Key highlights

• US inflation expected to rise sharply again in April
• Iran conflict pushing up fuel and energy prices globally
• Federal Reserve likely to keep interest rates elevated
• Food and transport costs also under pressure
• Australian borrowers and markets watching closely

Inflation Pressures Continue To Build

Economists expect the US Consumer Price Index (CPI) to increase 0.6% in April following a sharp 0.9% jump in March.

On an annual basis, inflation is forecast to rise to 3.7%, the highest level since late 2023.

Much of the pressure is coming from higher oil and fuel prices after the US-Iran conflict disrupted global energy markets and pushed crude prices sharply higher.

Gasoline prices are expected to account for a major share of the increase, while food prices are

also forecast to climb as shipping disruptions and fertiliser shortages affect supply chains.

Fed Seen Holding Rates Higher For Longer

The inflation data is likely to reinforce expectations that the Federal Reserve will leave interest rates unchanged for an extended period.

Financial markets increasingly believe US rates may stay elevated into 2027 as policymakers battle stubborn inflation pressures.

The Fed last month kept interest rates in the 3.50% to 3.75% range and warned inflation risks remain elevated.

Core Inflation Also Expected To Rise

Underlying inflation, which strips out food and energy costs, is also expected to accelerate.

Economists say part of the increase reflects a one-off adjustment to rent data after disruptions caused by last year’s US government shutdown.

Healthcare costs are also expected to contribute to higher core inflation readings.

Political Pressure Builds On Trump

The inflation surge is becoming an increasing political risk for President Donald Trump ahead of the November midterm elections.

Trump had campaigned heavily on lowering living costs and reducing inflation, but rising fuel prices and broader cost-of-living pressures are hurting consumer confidence.

Economists warn households are increasingly feeling squeezed by higher energy and grocery costs.

What This Means For Australia

Australia remains highly exposed to global inflation and energy price shocks.

If the US Federal Reserve keeps rates elevated for longer, pressure could build on the Reserve Bank of Australia to maintain tighter monetary policy as well.

Higher global oil prices are already contributing to rising fuel costs across Australia, while prolonged inflation risks could affect mortgage rates, business confidence and consumer spending.

Australian investors are also closely watching whether slowing global growth and higher borrowing costs begin affecting financial markets more broadly.

Markets Brace For More Volatility

Investors are now closely focused on upcoming US inflation and retail sales data for signs that higher energy costs are beginning to damage consumer spending.

Markets are also monitoring whether the Iran conflict continues disrupting oil supplies and pushing inflation even higher globally.

FAQs

Q1: Why is US inflation rising again?

Higher fuel and energy prices linked to the Iran conflict are pushing up transportation, food and consumer costs.

Q2: Why does this matter for interest rates?

Persistent inflation reduces the chances of central banks cutting rates anytime soon.

Q3: Could this affect Australia?

Yes. Higher global inflation and oil prices can influence Australian fuel costs, interest rates and economic growth.

Q4: What is core inflation?

Core inflation excludes food and energy prices to provide a clearer picture of underlying price pressures in the economy.

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The US dollar strengthened against major currencies on Monday while oil prices jumped sharply after President Donald Trump rejected Iran’s latest response to a proposed peace framework, reigniting concerns the Middle East conflict could drag on for longer than markets had hoped.

Key highlights

• US dollar gains as investors return to safe-haven assets
• Trump calls Iran’s latest peace response “totally unacceptable”
• Brent crude jumps more than 3% as oil market fears intensify
• Australian dollar and other risk-sensitive currencies weaken
• Strong US jobs data also supports expectations of higher rates

Markets Turn Defensive Again

Global currency markets shifted back into risk-off mode early Monday as geopolitical tensions resurfaced following Trump’s latest comments on Iran.

The euro, British pound and Japanese yen all weakened against the US dollar, while commodity-linked currencies including the Australian and New Zealand dollars also slipped.

Analysts said investors moved back into the dollar due to fears the conflict could intensify again and further disrupt global energy supplies.

Oil Prices Jump After Trump Remarks

Oil prices surged after Trump publicly rejected Iran’s latest response to a US peace proposal.

Writing on Truth Social, Trump described Tehran’s response as “TOTALLY UNACCEPTABLE,” without providing further details.

The comments dampened hopes for an imminent breakthrough in negotiations aimed at ending the conflict that has disrupted energy markets and shipping routes across the Middle East.

Brent crude climbed more than 3% in early trade, rising above US$104 a barrel as traders reacted to the renewed uncertainty.

Strong US Jobs Data Adds To Dollar Strength

The greenback also continued drawing support from stronger-than-expected US employment data released late last week.

Non-farm payrolls rose by 115,000 jobs in April, significantly above market forecasts, reinforcing expectations that the US Federal Reserve may keep interest rates elevated for longer.

The stronger labour market data has reduced expectations for near-term rate cuts, helping underpin the dollar.

China Data Offers Some Relief

Against the Chinese yuan, the US dollar remained relatively steady after fresh trade data showed China’s exports accelerated sharply in April.

Exports rose 14.1% year-on-year as factories benefited from strong artificial intelligence-related demand and improving global trade conditions.

Markets are now awaiting the upcoming meeting between Trump and Chinese President Xi Jinping later this week, where discussions are expected to include Iran, technology, Taiwan and critical minerals.

Why This Matters For Australia

Australia remains highly exposed to swings in global commodity prices and investor sentiment.

Higher oil prices could place renewed pressure on local petrol prices, transport costs and inflation, while a stronger US dollar often weighs on the Australian dollar and broader risk appetite across markets.

Investors are also closely watching US-China relations because China remains Australia’s largest trading partner.

Investors Brace For More Volatility

Markets now remain highly sensitive to headlines surrounding Iran, oil flows through the Strait of Hormuz and broader geopolitical tensions.

Analysts warn volatility could remain elevated this week as investors monitor both the Trump-Xi meeting and any fresh developments in the Middle East conflict.

FAQs

Q1: Why did the US dollar strengthen?

The dollar gained because investors moved into safe-haven assets amid renewed fears over the Iran conflict and expectations of higher US interest rates.

Q2: Why are oil prices rising again?

Oil prices jumped after Donald Trump rejected Iran’s latest peace response, raising concerns the conflict may continue disrupting energy supplies.

Q3: How does this affect Australia?

Higher oil prices could increase fuel costs and inflation in Australia, while global market volatility may impact the ASX and the Australian dollar.

Q4: Why is the Trump-Xi meeting important?

The meeting could influence global trade, technology access, geopolitical stability and investor sentiment worldwide.

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Wall Street’s scorching rally is entering a high-risk week as investors prepare for key US inflation data, developments in the Iran conflict and a closely watched meeting between Donald Trump and Chinese President Xi Jinping that could shape global markets for months.

Key highlights

• S&P 500 and Nasdaq remain near record highs after strong earnings
• Investors closely watching Trump-Xi meeting and Iran conflict updates
• Inflation and retail sales data could reshape Fed rate expectations
• Oil prices remain elevated due to Middle East supply fears
• Australian investors exposed to commodity, energy and tech market swings

What Happened

US stocks have surged sharply in recent weeks, with the S&P 500 climbing more than 16% from its March lows as investors piled back into equities despite ongoing geopolitical risks.

Markets have been supported by stronger-than-expected corporate earnings, booming AI-related investment and hopes that tensions between the US and Iran may eventually ease.

However, analysts warn the next week could become a major turning point for global markets as investors digest fresh economic data alongside geopolitical uncertainty.

The spotlight will fall heavily on the upcoming meeting between Trump and Xi in Beijing, where discussions are expected to include trade, technology access, rare earth supplies and the ongoing Iran conflict.

Iran War Still Looms Over Markets

The Middle East conflict remains one of the biggest risks for investors.

Oil prices have surged more than 60% this year after the war disrupted shipping and energy markets, particularly around the Strait of Hormuz, one of the world’s most critical oil transit routes.

Investors are now closely watching whether vessel traffic through Hormuz begins normalising, which many see as a key signal that broader supply risks may ease.

Analysts say any escalation could quickly reignite fears around inflation, supply chains and global economic growth.

AI Boom Continues Driving Market Frenzy

The AI investment wave remains one of the strongest drivers behind Wall Street’s rally.

First-quarter S&P 500 earnings are on track to jump nearly 29%, according to LSEG data, with much of the growth fuelled by technology giants and massive spending on artificial intelligence infrastructure.

Upcoming earnings from companies including Cisco and Applied Materials will provide fresh insight into whether the AI-driven momentum can continue.

Investors are also awaiting later reports from Nvidia and Walmart, which could heavily influence broader market sentiment.

Inflation Data Could Shift Everything

Markets will also face a critical test from upcoming US inflation figures.

Economists expect April consumer prices to remain elevated after the Iran war triggered another sharp rise in fuel and energy costs.

Core inflation data, which excludes volatile food and energy prices, will be watched especially closely because it may determine whether the US Federal Reserve keeps interest rates elevated for longer.

Retail sales figures later in the week could also reveal whether higher petrol prices are starting to hurt consumer spending.

Why This Matters For Australia

Australian markets remain heavily exposed to movements in global commodities, energy prices and US investor sentiment.

Higher oil prices could keep pressure on inflation and fuel costs across Australia, while any major sell-off on Wall Street would likely spill into the ASX, particularly technology and mining stocks.

The Trump-Xi meeting is also critical for Australia because China remains the country’s largest trading partner, especially for commodities including iron ore and LNG.

Australian investors are additionally watching whether rising global uncertainty delays future interest rate cuts from central banks.

Investors Fear Markets May Be Getting Ahead Of Reality

Some strategists warn markets may be underestimating ongoing risks.

While investors have largely focused on positive earnings and AI optimism, concerns remain around inflation, geopolitical instability and whether consumers can withstand prolonged higher energy costs.

Analysts say next week’s data and geopolitical developments could determine whether Wall Street’s rally has further room to run, or faces a sharper pullback.

What Happens Next

Markets now head into a crucial week dominated by inflation reports, retail spending data and geopolitical developments.

Investors will closely monitor:

• Trump and Xi’s meeting in Beijing
• US inflation and retail sales figures
• Oil market volatility linked to Iran
• Corporate earnings from major tech firms
• Signals from the Federal Reserve on rates

Any major surprise could trigger significant volatility across global financial markets.

FAQs

Q1: Why are investors worried about the Iran conflict?

The conflict has disrupted oil markets and pushed energy prices sharply higher, increasing inflation risks globally.

Q2: Why is the Trump-Xi meeting important?

The talks could influence trade relations, technology access and broader geopolitical stability between the world’s two largest economies.

Q3: How is AI helping Wall Street rally?

Strong spending on AI infrastructure and technology has boosted earnings growth across major US companies.

Q4: Why does this matter for Australia?

Australia is highly exposed to global commodity prices, Chinese demand and US market sentiment, making Wall Street volatility important for local investors.

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John Williams said US monetary policy is “well positioned” to navigate rising uncertainty and inflation risks stemming from the Middle East conflict, while signaling that rate cuts could come once price pressures ease.

Key highlights

• Fed policy “well positioned” to handle uncertainty, says Williams
• US growth seen at 2%–2.25% in 2026
• Inflation expected around 3% before easing to 2% target
• No immediate case for rate hikes, but outlook remains uncertain
• Energy shocks from Middle East conflict pose key risk

Policy stance steady amid uncertainty

Speaking in New York, the Federal Reserve Bank of New York president said the economic outlook remains difficult to predict, with risks to both growth and inflation increasing.

He emphasized that policymakers are in a “wait-and-see” mode given the evolving impact of supply disruptions and higher energy prices.

Growth resilient, labour market stable

Williams expects the US economy to grow between 2% and 2.25% this year, supported by relatively stable labour market conditions.

Unemployment is projected to remain in the range of 4.25% to 4.5%, indicating continued resilience despite global uncertainties.

Inflation to stay elevated before easing

Inflation is likely to hover around 3% this year due to tariffs and rising energy costs before gradually returning to the Fed’s 2% target.

Williams noted that while inflation expectations remain broadly stable, risks from further energy price spikes could worsen the outlook.

No near-term rate hike signal

Williams said current data does not point to the need for an immediate rate hike, but also cautioned against providing clear forward guidance given the uncertainty.

He reiterated that rate cuts would likely be appropriate in the future once inflation trends lower.

Energy shocks remain key risk

The conflict-linked disruption, particularly around the Strait of Hormuz, continues to drive volatility in energy markets.

Williams warned that more severe supply shocks could have broader consequences for both inflation and economic activity.

Fed divided but broadly aligned

Recent policy decisions by the Federal Reserve showed some اختلاف among officials, with differing views on the future direction of rates.

However, Williams said there remains broad agreement on the current policy stance despite those differences.

What comes next

The Fed is expected to maintain its cautious approach, closely monitoring inflation trends, energy markets and labour data.

Future rate decisions will depend on how quickly inflation moderates and whether economic growth remains stable.

FAQs

Q1: What did John Williams say about Fed policy?
He said monetary policy is well positioned to handle economic uncertainty and inflation risks.

Q2: Is the Fed planning to raise rates?
Williams said there is no immediate need for rate hikes based on current data.

Q3: What is the growth outlook?
The US economy is expected to grow between 2% and 2.25%.

Q4: What are the main risks?
Energy price shocks and geopolitical tensions remain key risks.

Q5: Will the Fed cut rates?
Yes, but only once inflation moves back toward the 2% target.

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Wall Street closed on a mixed note Wednesday as investors weighed a divided Federal Reserve decision, surging oil prices tied to Middle East tensions, and a crucial batch of earnings from major technology companies.

Key highlights

• Wall Street ended mixed as investors digested Fed policy and oil surge
• Fed held rates steady but delivered its most divided vote since 1992
• Oil prices jumped on fears of prolonged Iran-related supply disruption
• Big Tech earnings from Amazon, Microsoft, Meta and Alphabet in focus
• Energy stocks gained while utilities and materials lagged

What Happened

The three major US stock indexes showed divergent performance after a volatile session. 

The Dow Jones Industrial Average fell 280.12 points (0.57%) to 48,861.81, the S&P 500 slipped 2.82 points (0.04%) to 7,135.98, while the Nasdaq Composite edged up 9.44 points (0.04%) to 24,673.24.

Markets reacted to the Federal Reserve’s decision to hold interest rates steady, alongside one of its most divided policy votes in decades. 

Investors also assessed rising geopolitical risks after reports that the US could prepare for a prolonged blockade of Iranian ports, tightening global oil supply.

Why This Matters

The combination of elevated oil prices, policy uncertainty and high-stakes earnings is shaping market sentiment. 

Persistent energy-driven inflation risks could delay rate cuts, while Big Tech results will test whether heavy AI investments are translating into sustainable growth.

Official Statements

Matthew Keator, managing partner at Keator Group, said prolonged conflict and higher energy prices could eventually impact consumer spending and corporate earnings.

He noted that while earnings matter, forward guidance, especially around capital expenditure and AI strategy, will be more critical for investors.

Sector Performance

Energy stocks led gains within the S&P 500, benefiting from the surge in crude prices. Meanwhile, utilities and materials sectors recorded the steepest declines, reflecting broader risk-off sentiment in parts of the market.

Other Market Moves

Shares of Alphabet rose over 3% in after-hours trading, while Amazon and Microsoft declined more than 3%. Meta Platforms fell over 6%.

Among individual stocks, Robinhood Markets dropped 13.2% after missing profit estimates. Seagate Technology surged 11.1% on a strong forecast, lifting peers like Western Digital.

Visa gained 8.3% after raising its full-year outlook, while Starbucks rose 8.5% on an improved profit forecast.

Now what?

Investors will closely monitor earnings from Big Tech firms and further signals from central banks. 

Oil price trends and developments in the Middle East conflict will remain key drivers of inflation expectations and market direction in the near term.

FAQs

Q1: Why did Wall Street end mixed?
Markets were pulled in different directions by rising oil prices, the Federal Reserve’s policy stance, and mixed investor sentiment ahead of major Big Tech earnings announcements.

Q2: What is driving concern around AI spending?
Investors are increasingly questioning whether the massive capital expenditure by tech giants on AI infrastructure will generate sufficient near-term returns.

Q3: How did the Federal Reserve impact markets?
The Fed held interest rates steady but delivered a divided outlook, raising uncertainty about future policy direction amid rising inflation risks.

Q4: Which companies are in focus this earnings week?
Major tech firms including Amazon, Alphabet, Microsoft, and Meta Platforms are reporting results, making this a crucial week for markets.

Q5: How are oil prices affecting stocks?
Surging crude prices due to Middle East tensions are fueling inflation concerns, which can pressure equities and influence central bank decisions.

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US stocks closed mixed on Friday, with investors turning cautious ahead of the weekend as they monitored ongoing Middle East negotiations and assessed fresh inflation data showing rising price pressures.

Key highlights

• US stocks ended mixed Friday but posted strong weekly gains
• Inflation rose in March, driven by a surge in energy prices
• Tech stocks lifted Nasdaq; Dow and S&P 500 slipped
• Investors cautious ahead of weekend amid Middle East tensions
• Chip stocks hit record highs, leading sector gains

What happened

The Dow Jones Industrial Average fell 269.23 points, or 0.56%, to 47,916.57, while the S&P 500 slipped 0.11% to 6,816.89. The Nasdaq Composite rose 0.35% to 22,902.89, supported by gains in technology stocks.

Despite the mixed close, all three major indexes posted their strongest weekly gains since November, recovering from early-week volatility tied to geopolitical tensions.

Markets fluctuated through the session as investors weighed developments around a fragile ceasefire involving Iran, alongside Israel’s continued military activity in Lebanon.

Why this matters

Investor sentiment remains highly sensitive to geopolitical developments, particularly around the Strait of Hormuz, a critical oil transit route.

At the same time, inflation risks are re-emerging, with rising energy prices threatening to delay interest rate cuts and potentially tighten financial conditions further.

The combination of geopolitical uncertainty and inflation pressures is likely to keep markets volatile in the near term.

Official statements

“Traders are pretty hesitant to have exposure going into a long weekend where there’s going to be an Iran-US negotiation,” said Jed Ellerbroek, portfolio manager at Argent Capital Management.

“Investors are expecting a lot of news and the market being closed for 2-1/2 days is a long time for things to change,” he added.

San Francisco Fed President Mary Daly said the oil shock from the conflict could delay progress toward the Federal Reserve’s 2% inflation target.

Sector performance

Technology stocks led gains, helping lift the Nasdaq, with chipmakers reaching record highs.

Broadcom rose 4.7% while Nvidia gained 2.6%, driving momentum in the semiconductor space.

Consumer staples were the worst-performing sector, while financial stocks lagged ahead of upcoming earnings reports from major US banks.

Other market moves

CoreWeave surged 10.9% after announcing a multi-year agreement with Anthropic.

Shares of Taiwan Semiconductor Manufacturing rose 1.4% after beating quarterly revenue forecasts.

Declining stocks outnumbered advancers on both the NYSE and Nasdaq, reflecting cautious investor positioning.

What happens next

Markets are expected to remain driven by geopolitical headlines, particularly developments in Middle East negotiations and the status of the ceasefire.

Investors will also closely track upcoming corporate earnings and inflation data for clearer signals on the Federal Reserve’s policy path.

FAQs

Q1: Why did Wall Street end mixed on Friday?
Stocks closed mixed as investors balanced optimism over weekly gains with caution ahead of geopolitical developments and inflation concerns.

Q2: What drove the weekly gains in US stocks?
Easing fears around Middle East tensions earlier in the week and strong performance in technology stocks supported the rally.

Q3: How is inflation impacting markets?
Rising energy prices pushed inflation higher, raising concerns that interest rate cuts could be delayed.

Q4: Which sectors performed best?
Technology and semiconductor stocks led gains, while consumer staples and financials underperformed.

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US consumer prices rose sharply in March, posting their biggest monthly gain in nearly four years, as fuel costs surged following the Middle East conflict, according to government data released Friday.

Key highlights

• CPI rose 0.9% in March, the biggest increase since 2022
• Gasoline prices surged 21.2%, a record jump
• Annual inflation climbed to 3.3%
• Core inflation remained moderate but may not hold
• Economists expect broader price pressures ahead

What happened

The Consumer Price Index (CPI) increased 0.9% in March.

This marked the largest monthly rise since June 2022.

The jump was mainly driven by energy prices.

Gasoline prices surged 21.2%, the biggest increase on record. Diesel and other fuels also rose sharply.

On a yearly basis, inflation accelerated to 3.3%.

That compares with 2.4% in February.

Why this matters

The sharp rise adds pressure on the Federal Reserve.

Policymakers had been expecting inflation to cool this year.

However, higher fuel costs could keep prices elevated.

As a result, expectations for rate cuts may be delayed.

Economists also warned that the March data captured only the early impact of the oil shock.

Broader effects are likely to appear in the coming months.

What’s driving inflation

Energy was the biggest contributor to the increase.

Gasoline alone accounted for nearly three-quarters of the monthly rise in CPI.

Meanwhile, food prices were largely unchanged.

Grocery prices dipped slightly, helped by a decline in egg and meat prices.

Core inflation, which excludes food and energy, rose 0.2%.

That was in line with February.

However, the reading was partly held down by declines in used vehicle prices and health insurance.

Economists said these drops may be temporary.

Official signals

Economists say inflation risks remain tilted to the upside.

Christopher Rupkey of FWDBONDS said the economy has taken a direct hit from the oil shock.

Sung Won Sohn of Loyola Marymount University added that energy prices tend to fall slowly even after a spike.

At the same time, consumer sentiment has weakened sharply.

A survey from the University of Michigan showed confidence falling to a record low.

Market reaction

Markets reacted cautiously to the data.

Stocks on Wall Street declined, while Treasury yields moved higher.

The dollar weakened against a basket of currencies.

What happens next

Inflation is expected to remain elevated in the near term.

Higher fuel costs could feed into transport, goods and services prices.

The Federal Reserve is now likely to remain cautious.

Most economists expect the central bank to hold rates steady for longer.

FAQs

Q1: Why did US inflation rise in March?
A sharp increase in gasoline and diesel prices was the main driver.

Q2: Is inflation expected to stay high?
Yes, economists expect broader price pressures in the coming months.

Q3: What does this mean for interest rates?
Rate cuts may be delayed as inflation risks remain elevated.

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The US services sector March inflation Iran war trend signals growing pressure on the economy, as business activity slowed while input costs surged sharply due to energy disruptions.

Key highlights

• US services sector growth slows in March
• Input prices surge to highest level in over a decade
• Iran war adds inflation pressure and economic uncertainty

Growth cools but expansion continues

The Institute for Supply Management said its services PMI fell to 54.0 in March from 56.1 in February.

Although the reading remains above 50, it indicates slower growth. The services sector still accounts for more than two-thirds of US economic activity.

Several industries, including transportation, construction and wholesale trade, continued to expand.

Inflation pressures surge sharply

Inflation signals strengthened considerably during the month.

The ISM’s prices paid index jumped to 70.7. This marks the highest level since 2022 and the biggest monthly increase in over 13 years.

Rising fuel costs played a major role. Businesses across sectors reported higher prices for gas, diesel and raw materials.

In addition, supply chain disruptions led firms to build inventories to manage risks.

Iran war adds uncertainty for businesses

The ongoing conflict has become a major concern for companies.

Businesses cited the Strait of Hormuz as a key risk, with threats to shipping routes increasing logistics costs.

Moreover, industries such as real estate and wholesale trade said the war has added uncertainty to an already fragile economic environment.

Global oil prices have risen sharply, further feeding inflation concerns.

Employment weakens despite broader strength

The survey showed services employment falling to its lowest level since late 2023.

However, this contrasts with official data showing strong job growth in March. Economists said the ISM employment index is not always a reliable indicator.

Still, the decline suggests some softening in hiring conditions.

Orders remain strong, supply delays rise

New orders rose to a two-year high, indicating solid demand.

At the same time, supplier deliveries slowed. This signals ongoing supply chain pressure.

Some firms reported delays due to backlogs and transport shortages.

Fed policy outlook remains cautious

The data reinforces expectations that the Federal Reserve will hold interest rates steady.

Rising inflation and slowing growth create a difficult balance for policymakers.

Earlier hopes of rate cuts have weakened as price pressures intensify.

Market reaction remains steady

Financial markets showed limited reaction.

Wall Street stocks traded higher, while the US dollar and Treasury yields remained stable.

Investors are now focusing on upcoming inflation data for further signals.

What happens next?

Markets will closely watch the upcoming Consumer Price Index report.

If inflation continues to rise, it could delay any potential rate cuts. At the same time, prolonged conflict risks further slowing economic growth.

FAQs

Q1: Why did the US services sector slow?
Growth eased due to rising costs and uncertainty linked to the Iran war.

Q2: What is driving inflation?
Higher energy prices and supply chain disruptions are pushing input costs up.

Q3: Is the services sector still growing?
Yes, but at a slower pace, as indicated by the PMI above 50.

Q4: What will the Fed do next?
The Fed is likely to keep interest rates unchanged for now.

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Jerome Powell said the Federal Reserve can afford to wait and assess how the Iran war impacts inflation and the economy, signalling no urgency to adjust interest rates despite rising energy prices and growing uncertainty.

Key highlights

• Powell signals “wait and see” approach on inflation
• Fed sees policy in a “good place” for now
• Iran war adds uncertainty via energy prices
• Rate hike expectations fade in markets
• Inflation expectations remain anchored

Policy stance

Speaking at Harvard University, Powell said the Fed’s current policy setting allows time to evaluate how the situation evolves.

“We feel like our policy’s in a good place for us to wait and see how that turns out,” he said.

Market reaction

Powell’s comments helped calm markets, which had recently begun pricing in the possibility of rate hikes to counter inflation driven by higher oil prices.

Those expectations have now largely faded.

Dual mandate tension

Powell acknowledged the growing tension between the Fed’s goals of controlling inflation and supporting employment.

Rising oil prices pose upside risks to inflation, while potential economic slowdown creates downside risks for the labour market.

“There’s tension between the two objectives,” he said.

Inflation outlook

Despite recent shocks, Powell said longer-term inflation expectations remain stable.

“Inflation expectations do appear to be well anchored beyond the short term,” he noted.

However, he warned that the scale of the latest energy shock remains uncertain.

Rate outlook

The Fed earlier kept its benchmark interest rate unchanged at 3.50%–3.75%.

Powell reiterated that policymakers would prefer to see tariff-driven inflation ease before deciding whether to respond to war-driven price pressures.

Markets have now largely priced out rate cuts this year, compared with expectations for easing before the conflict began.

Energy shock risk

Powell described the Iran war as the latest in a series of shocks impacting inflation, following the pandemic and tariff measures.

“We’re getting now an energy shock: no one knows how big it will be,” he said.

Oil prices have surged sharply since the conflict began, adding to inflation concerns.

Economic signals

Recent data has shown mixed signals on inflation expectations.

A survey by the University of Michigan indicated a rise in short-term household inflation expectations, while market-based measures have remained more stable.

Broader remarks

Powell also addressed a range of topics, including financial markets, artificial intelligence and the Fed’s balance sheet.

He reiterated that the central bank should remain focused on its core mandate and avoid political influence.

“We’re not trying to work against any politician or any administration,” he said.

Leadership transition

Powell declined to offer specific advice to Kevin Warsh, who has been nominated by Donald Trump to succeed him when his term ends.

Warsh has indicated support for cutting interest rates.

Australia angle

For Australia, Powell’s cautious stance signals that global interest rates may remain higher for longer.

This could influence the Reserve Bank of Australia’s policy outlook, potentially delaying any rate cuts domestically.

At the same time, persistent energy-driven inflation pressures could feed into Australian prices, complicating the inflation outlook and adding pressure on households and businesses.

Now what?

The Fed will continue to monitor inflation expectations and economic data before making any policy moves.

Markets will closely track developments in oil prices and the Iran war to gauge the potential scale of the energy shock.

FAQs

Q1: What did Powell say about interest rates?
He said the Fed can wait and assess the impact of the Iran war before making changes.

Q2: Why is the Fed cautious?
Because of uncertainty around inflation and economic growth.

Q3: Are rate hikes expected?
Markets have largely ruled out immediate rate hikes.

Q4: What is the biggest risk right now?
An energy-driven inflation shock from rising oil prices.

Q5: Why does this matter for Australia?
Global rate trends influence the RBA’s policy decisions and inflation outlook.

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