Global markets split on Fed rate signals, Iran deal optimism

Global markets delivered a mixed performance on Thursday as investors weighed the Federal Reserve's signal of possible rate increases against the positive sentiment generated by the US-Iran peace deal, which has eased concerns over energy supplies and geopolitical tensions. The Fed unanimously held its benchmark interest rate at 3.5%-3.75%, in line with expectations. However, updated projections indicated a more hawkish outlook, with the central bank raising its year-end federal funds rate forecast to 3.8% from 3.4% and its 2027 projection to 3.6% from 3.1%.

Inflation and growth projections

The Fed also lifted its inflation forecast to 3.6% for 2026 from 2.7%, while lowering its growth estimate for the year to 2.2% from 2.4%. Nine of 18 policymakers now anticipate at least one rate hike this year. Fed Chair Kevin Warsh emphasized that inflation remains above the 2% target and reaffirmed the bank's commitment to price stability. Money markets have shifted their expectations, now pricing in a rate increase in October instead of December. Treasury yields rose to 4.5% before easing to 4.45% on Thursday as oil price declines softened inflation fears.

Currency and commodity moves

The US Dollar Index climbed to 100.6 on Wednesday—its first move above 100 since April—before dipping to 100.2 on Thursday. Gold advanced 1.4% to $4,316 per ounce. Brent crude dropped 1% to $77.70 as the Iran deal boosted supply expectations. US stocks closed lower Wednesday, with the Dow down 0.98% and the Nasdaq falling 1.34%, though markets opened higher Thursday.