Fed Holds Rates Steady, but Says Iran War Causing Economic Uncertainty

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0:32Matt Grossman:The Fed holds rates steady, but the war with Iran clouds its outlook for future decisions. Plus, oil prices rose again today after new attacks on Middle East energy infrastructure. And how U.S. Marines could help reopen the Strait of Hormuz and get oil flowing again.

0:48Lara Seligman:This unit is typically used for raids or special operations. It seems likely that the U.S. Marines that are being sent to the Middle East could be deployed to seize some of the islands off of the southern coast of Iran.

1:03Matt Grossman:It's Wednesday, March 18th. I'm Alex Osula for The Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today.

1:17Matt Grossman:The Federal Reserve held interest rates steady today for the second meeting in a row. And for later this year, officials kept open the possibility of cutting rates, even as higher energy prices from the Iran war threatened to make bringing down inflation more difficult. For more on the Fed's decision, I'm joined now by WSJ economics reporter Matt Grossman. Matt, how did officials talk about the prospect of rising inflation due to higher energy prices? Did they see it basically as a guarantee? Are they still going to kind of wait and see?

1:44Lara Seligman:Well, in his press conference today, Chair Powell talked about the effects of the war in Iran as highly uncertain. The implications of events in the Middle East for the U.S. economy are uncertain. 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. What he did point to was the risk that some of the inflation that was already part of the economy before the conflict started could stick with us and that the Fed has been a bit frustrated that they haven't seen more progress on that so far this year.

2:20Matt Grossman:The Fed officials make projections about future rate cuts and increases. Have those changed at all?

2:26Lara Seligman:The top-line result is that the median Fed official penciling in one interest rate cut over the rest of this year. Under the surface, there were some officials who previously thought the Fed could cut several times, who narrowed that forecast a little bit, seeing less of a path toward more than one cut this year. So there wasn't a dramatic change in the rate projections. But in his press conference, Chair Powell really emphasized that the Fed isn't just concerned about the Iran conflict as far as more rate cuts go. They also really want to see more progress on some of the underlying inflation and the tariff-driven inflation before they think about bringing rates down farther.

3:11Lara Seligman:He mentioned that there were a couple people at today's meeting who suggested that a potential rate hike might be a possibility in the future. although he did emphasize that that is not the view of most of the people on the committee.

3:23Matt Grossman:President Trump has continued to put pressure on the Fed as recently as this week, in fact, to cut rates. Did we see that have an impact today?

3:32Lara Seligman:Well, Powell only talked briefly about the investigation that he's been facing. He has said as part of Trump's pressure campaign to influence how the Fed sets rates, Powell's term as a chair of the Fed ends in May. But even after May, Powell would have the opportunity to stay on the Fed in his role as a governor, a member of the board. And today, Powell reiterated something that came up in a legal filing last week, which was that he really wants to stay in that position until the investigation wraps up. And while I'm at it, on the question whether I will leave while the investigation is ongoing.

4:12Lara Seligman:I have no intention of leaving the board until the investigation is well and truly over. In other words, doesn't want to leave under duress.

4:20Matt Grossman:That was WSJ economics reporter Matt Grossman. Thanks, Matt.

4:24Lara Seligman:Thanks.

4:29Matt Grossman:Powell's comments about rising oil prices and the effect on U.S. economic growth sent stocks tumbling, closing near-session lows. The Fed meeting left investors thinking future rate cuts were less likely. All three major U.S. indexes ended more than 1 percent lower, with the Dow leading the losses, falling 1.6 percent. Meanwhile, more attacks on Middle East energy infrastructure sent oil prices soaring. Brent crude futures, the global oil benchmark, settled around$107 a barrel, but soared above$111 a barrel in after-hours trading. Today, in an effort to curb rising energy prices, President Trump issued a 60-day waiver of the Jones Act.

5:07Matt Grossman:The law has been around for a century, and it requires that ships moving goods between U.S. ports sail under a U.S. flag and have a crew of sailors that are U.S. citizens. I'm joined now by Costas Perez, who covers shipping for the journal, to talk about why the president is doing this now. Costas, is it common to see the Jones Act waived? When have we seen this in the past?

5:27Lara Seligman:Very, very rarely. The U.S. government granted one after Hurricane Maria devastated Puerto Rico in 2017. And again, after the island was struck by Hurricane Fiona in 2022, another waiver was granted in 2021 for fuel shipments to the East Coast after the colonial pipeline shut down, falling, and cyber attack.

5:50Matt Grossman:How would waiving the act lead to lower oil prices? Can you just like connect those dots for us?

5:56Lara Seligman:Moving oil from U.S. port to U.S. port requires Jones Act ships. Those ships cost to be built about three times as much compared to Asia. That's the one thing. The second higher cost is manning it with American crews. American sailors are more expensive. And of course, if you build a ship that's three times more expensive, the insurance for the ship itself is expensive. So waiving it, the transport costs will be cut down substantially.

6:30Matt Grossman:That was WSJ reporter Costas Perez. Thanks, Costas.

6:34Lara Seligman:Thank you, guys.

6:38Matt Grossman:And turning to private markets, we're exclusively reporting that Stone Ridge Asset Management, a fund holding consumer and small business loans, is the latest corner of the private credit market to come under stress. The Wall Street Journal saw an investor update the firm put out last week. It said recent redemption requests were so high that it would only honor 11 percent of the amount investors wanted back. Lots of investors have been wanting to cash out of private credit in recent weeks, and fund managers have had to grapple with whether to relax their existing redemption limits. Many of those funds held loans to software makers or other corporate sectors that investors fear will be displaced by advances in artificial intelligence.

7:18Matt Grossman:Coming up, we've got the latest on the conflict in the Middle East, and President Trump's pick to lead the Department of Homeland Security fits for a confirmation hearing. That's after the break. Thank you.

7:57Lara Seligman:Learn more, visit Vanguard.com. All investing is subject to risk. Vanguard Marketing Corporation Distributor. Figure as of January 2025.

8:07Matt Grossman:In the Middle East, Israel says it's killed Iranian intelligence minister Esmail Khatib, the latest member of Tehran's top leadership it has killed this week. Israel said Khatib played a significant role during the Tehran regime's crackdown on recent protests and said it had planned to hunt down all of Iran's leadership. Iran confirmed Khatib's killing, with its president saying he was heartbroken by the death. Separately, earlier today, Israel struck Iran's massive South Pars gas field, which Tehran shares with Qatar. An American official said the U.S. was aware of the operation. Later, a ballistic missile fired by Iran hit a major liquefied natural gas hub in Qatar, causing extensive damage.

8:46Matt Grossman:In response to the Israeli strike, Iran said it considered refineries, petrochemical facilities, and gas fields to be, quote, legitimate and prime targets. Oil officials in Qatar, Saudi Arabia, and the United Arab Emirates evacuated oil infrastructure. Meanwhile, Saudi Arabia said that it intercepted and destroyed four ballistic missiles fired toward its capital, Riyadh, with debris falling in parts of the city. No initial damage or injuries were reported. And we told you last week that the Pentagon is moving additional Marines and warships to the Middle East. Those forces, the 31st Marine Expeditionary Unit, a rapid response force of about 2 ,200 Marines, are expected to arrive next week.

9:27Matt Grossman:One of the ways the U.S. could use those forces is to reopen the Strait of Hormuz, that critical pathway for the world's oil that Iran has effectively closed. I'm joined now by Lara Seligman, who covers national security for the journal. Laura, what is the Marine Expeditionary Unit, and how could the U.S. use it in the Middle East?

9:45Lara Seligman:This unit is typically used for raids or special operations that they call the Marine Corps, the Swiss Army knife of the U.S. military. They can basically do anything. Based on my conversations with current and former U.S. officials, it seems likely that the U.S. Marines that are being sent to the Middle East could be deployed to seize some of the islands off of the southern coast of Iran. which Iran is using to threaten commercial traffic in the strait. Karg Island is the most strategic one economically. It's host to about 90 % of Iran's oil exports. So if the Marines seize this island, then they could potentially use that as a bargaining chip to get Iran to open the strait.

10:30Lara Seligman:There's multiple other islands that are actually in the strait itself. Keshem Island, right at the mouth, if you will, of the strait, That's host to a bunch of Iranian missile facilities and Iranian naval facilities as well. Seizing an island like that could allow the U.S. military high ground and the ability to use that position to then counter Iranian fastboats and missiles. And then there's Kesh Island and Ormuz Island as well, which are much smaller but also very strategically located.

11:02Matt Grossman:Boots on the ground is a red line for a lot of Americans, including many Republicans who have supported President Trump in this conflict. Does deploying this unit mean that that's happening or could happen? And what would that mean for the president?

11:16Lara Seligman:Well, I think this is an interesting method to offer a bit of a loophole for that because these islands, some of them are actually disputed by the Emiratis. And they're, of course, islands. They're not Iran proper. So it does give the president a little bit of leeway to say, hey, we haven't actually put American boots on the ground, which is something that he's long promised to avoid. You know, we're just putting the American boots on some of these rocky islands off the coast of Iran. You could argue that this allows him to argue he has not broken his campaign promise.

11:46Matt Grossman:That was Wall Street Journal reporter Laura Seligman. Thanks, Laura.

11:49Lara Seligman:Thanks for having me.

11:56Matt Grossman:President Trump's pick to lead the Department of Homeland Security, Republican Senator Mark Wayne Mullen, faced lawmakers during his confirmation hearing today. The Oklahoma senator said he would take a lower profile approach to the job than Kristi Noem, while backing Trump's immigration crackdown.

12:11Lara Seligman:My goal in six months is that we're not in the lead story every single day. My goal is for people to understand we're out there, we're protecting them.

12:23Matt Grossman:And that's what's news for this Wednesday afternoon. Today's show was produced by Pierre Bien-Aimé with supervising producer Tali Arbel. I'm Alex Oselev for The Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.

12:47Lara Seligman:Voices are powerful things. At Vanguard, investors are also owners, and their voices are heard. And now with investor choice, they have an even greater voice when investing. It's just another reason millions of investors have turned to Vanguard for 50 years. 50 million investors, 50 million voices. Vanguard. Vanguard is owned by its funds, which are owned by Vanguard's fund shareholder clients. To learn more, visit Vanguard.com. All investing is subject to risk. Vanguard Marketing Corporation Distributor, figure as of January, 2025.