Wall Street Retreats as Fed Holds Policy Steady, Lifts Inflation Estimates

04:52 PM EDT, 03/18/2026 (MT Newswires) -- US equities retreated on Wednesday after a two-day advance as the Federal Reserve held interest rates steady and upgraded inflation estimates amid the ongoing war in the Middle East.

The Dow Jones Industrial Average closed 1.6% lower at 46,225.2, while the Nasdaq Composite dropped 1.5% to 22,152.4. The S&P 500 fell 1.4% to 6,624.70. All sectors ended in the red, led by consumer staples.

The central bank's Federal Open Market Committee left interest rates unchanged in a range of 3.50% to 3.75%, in line with Wall Street's expectations and marking its second consecutive pause. Last year, the FOMC delivered three back-to-back 25-basis-point cuts.

"The implications of developments in the Middle East for the US economy are uncertain," the FOMC said Wednesday.

The Fed maintained its monetary policy guidance even as policymakers raised headline and core inflation projections for this year and the next.

In his prepared post-meeting remarks, Fed Chair Jerome Powell said near-term inflation expectations have risen in recent weeks, likely due to elevated oil prices.

Crude futures advanced Wednesday as tensions in the Middle East escalated, with Iran threatening to hit more energy facilities in the region. Brent was last up 7.4% at $111.09 a barrel, and has surged more than 50% since the Iran war broke out on the last day of February. West Texas Intermediate was trading 3.6% higher at $99 a barrel.

"In the near term, higher energy prices will push up overall inflation, but it is too soon to know the scope and duration of the potential effects on the economy," Powell said.

The US economy could take a hit from soaring oil prices, Powell said during his post-meeting press conference, according to a CNBC report.

"The net of the oil shock will still be some downward pressure on spending and employment and upward pressure on inflation," he reportedly said. However, these shocks could be countered by higher energy production in the US, Powell said.

Ahead of the Fed decision, official data on Wednesday showed US producer prices rose at the fastest pace in seven months in February amid notable spikes in wholesale costs of food and energy.

"The spike in global oil prices in March means food and energy goods, along with transportation services, will likely see larger price increases in the next (producer price index) report," Oxford Economics said in a note.

The conflict, now in its third week, showed no signs of de-escalation.

Iran's Islamic Revolution Guards Corps warned people in Saudi Arabia, the United Arab Emirates, and Qatar to stay away from certain energy facilities in those countries, Iran's Tasnim News Agency reported, citing a statement released by the group.

The US has issued a 60-day waiver of a shipping law in a bid to stabilize oil markets, CNBC reported. Separately, Israel's Defense Forces reportedly said Iran's intelligence minister, Esmail Khatib, has been killed.

US Treasury yields were higher, with the 10-year rate last up 6.3 basis points at 4.27% and the two-year rate increasing 8.7 basis points to 3.77%.

In company news, shares of ad-buying software maker Trade Desk (TTD) slumped 6.1%, among the worst performers on the S&P 500, amid rating downgrades at Stifel and Rosenblatt.

Lululemon Athletica (LULU) shares climbed 3.8%, among the top gainers on the S&P 500. The athletic apparel retailer late Tuesday logged a surprise year-over-year increase in its fiscal fourth quarter sales.

Macy's (M) shares jumped 4.7% as the department store operator issued an upbeat full-year sales outlook after its fiscal fourth-quarter results topped market estimates.

Gold was last down 3.2% at $4,849.80 per troy ounce, while silver declined 4.8% to $76.11 per ounce.

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