He won't do it again. Donald Trump may be able to say that about Israel, which carried out strikes on South Pars, the world's largest gas field. However, the president is unlikely to prevail in his call for Jerome Powell to cut interest rates. No matter how loudly the White House pushes for looser policy, the Fed remains independent and will keep doing its job — and that is bad news for the S&P 500.

The broad index posted its worst reaction to an FOMC meeting since December 2024. According to Jerome Powell, investors should not expect rate cuts unless the Fed sees clear progress in reducing inflation. With the Fed's year-end PCE projection raised from 2.4% to 2.7%, the central bank's uncertainty is evident. Futures markets now estimate a roughly 48% chance that borrowing costs will remain at 3.75% by the end of the year. Before the Middle East conflict, that probability was a modest 4%.

S&P 500 reaction to FOMC meetings

High geopolitical risk combined with a Fed intent on keeping interest rates elevated is a toxic mix for the US equity market. Under such conditions, the risks of stagflation and a recession rise, regardless of Powell's rhetoric about US economic strength and the uncertain impact of the Middle East confrontation. The grim scenario is reinforced by a pickup in producer price inflation from 0.5% to 0.7% in February.

Yet, the VIX fear gauge shows that investors are not panic-stricken. After spiking above 35 at the outset of the first week of the US–Israel–Iran hostilities, equity market volatility fell back to February levels and has only ticked higher since.

US producer price dynamics

There is some consoling perspective. If the S&P 500 falls by 5% from its all-time high by March 20, that would have taken 47 days. History shows that when such a decline takes more than 40 days, the broad index has never entered a bear market since World War II. Faster collapses typically mark true bear markets; a slow slide gives bulls time to regroup.

In reality, however, many promises Trump makes that Israel will not target Iran's energy infrastructure, there is no end in sight to the Middle East conflict. That means oil prices can keep marching higher. Brent could conceivably reach $150, or even $200 per barrel. Stagflation and a recession are real possibilities. That is deeply negative news for US equities.

Technically, the S&P 500's daily chart shows a corrective move within the longer uptrend. Previously cited short targets at 6,510 and 6,390 are approaching. There is no reason to abandon a sell-on-rallies strategy for the broad index. Key resistance pivots sit at 6,665 and 6,700. While quotes remain below those levels, bears dominate the market.