US Equity Indexes Slump as Soaring Crude Oil Prices, Inflation Concerns Slash Bets for H2 Interest Rate Cut

05:22 PM EDT, 03/12/2026 (MT Newswires) -- US equity indexes fell on Thursday as surging crude oil amid Iran's threat to keep the Strait of Hormuz shut fueled concern that inflation will pose a challenge to the Federal Reserve in cutting interest rates this year.

The Nasdaq Composite slumped 1.8% to 22,311.98, with the S&P 500 down 1.5% to 6,672.62 and the Dow Jones Industrial Average lower by 1.6% to 46,677.85.

West Texas Intermediate crude oil futures catapulted 10% to $96.29.

Oil prices climbed after Iran's new supreme leader, Mojtaba Khamenei, issued his first public message, warning that the Strait of Hormuz will remain closed as a "tool of pressure," CNN reported. Read on Iranian state television by an anchor, the message also said that all US bases in the region "will be attacked" unless they shut down, the news report said.

"There are no indications yet that the US Navy is poised to commence an operation to ensure freedom of navigation through the critical waterway," Helima Croft, head of global commodity strategy and MENA research at RBC Capital Markets, wrote in a note. "Meanwhile, the risk to tankers and ports appears to be rising by the day."

Based on the US Energy Information Administration's general guideline, a $10 jump in crude would translate into a $0.24 increase in the price of gasoline per gallon, Macquarie said in a Wednesday note. If current crude oil pricing persists, it will boost the US headline consumer price index by 0.6 percentage points and the US personal consumption expenditures price index by 0.4 percentage points in the near term, according to Macquarie.

According to the CME FedWatch tool, the probability that the Federal Reserve will leave interest rates unchanged at its policy meetings in March, April, June, July, September, and October remained above 50%. A day ago, the likelihood that the policy pause would extend into September and October was below 50%. The chances of an unchanged Fed rate in December compared with current levels are 42%, up from 24% a day earlier.

Most US Treasury yields rose, with the 10-year yield up 5.7 basis points to 4.26%. The two-year yield jumped 10.7 basis points to 3.74%.

As the window for the Fed to cut rates narrows, the International Energy Agency's downwardly revised demand forecasts in the March 2026 Oil Market Report imply a near-term global economic slowdown, according to a separate research note from Macquarie.

In company news, Fair Isaac (FICO) said late Wednesday it priced $1 billion of 6.25% senior notes due 2034 in a private offering. Its shares slumped 7.6%, among the steepest decliners in the S&P 500.

Citigroup upgraded LyondellBasell Industries (LYB) to buy from neutral while adjusting its price target to $76 from $49. Shares of LyondellBasell soared 9.3%, among the top gainers in the S&P 500.

In precious metals, gold futures dropped 2% to $5,078.1 per troy ounce, and silver futures declined 2% to $83.83 per troy ounce.

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