The Fed’s Sticky Wicket

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Now, listen here. This whole business with Iran has rather thrown a spanner in the works, hasn’t it? The clever clogs at the Federal Reserve had a lovely little plan all mapped out – a gentle easing of those interest rates, a bit of a nudge to get things moving. But plans, as any sensible person knows, are often gobbled up by unforeseen events. And this event, well, it smells like trouble. The sort that lingers, like a bad egg.

For months, those futures markets – a peculiar sort of gambling den for grown-ups – were chattering about rate cuts. Even with prices stubbornly refusing to behave, and a few Fed members looking rather glum about it all, the whispers persisted. Two cuts by 2026, they said. Utter poppycock, some might argue, but there it was.

The thinking was simple, you see. The economy would slow down, jobs would become a bit scarce, and everything would sort of…deflate. And if this oil business – a nasty little spike, mind you – was just a temporary hiccup, well, even better. Long-term sense should always triumph over short-term shocks, shouldn’t it? Though one often wonders.

But this inflation beast…it just won’t lie down. And this Iran business? It could drag on for months, a proper, drawn-out pickle. If they decide to close that Strait of Hormuz – a vital little waterway, you understand – and the Americans refuse to back down until Iran surrenders (a rather stubborn position, if you ask me), we could be in for a long stalemate. A very sticky wicket indeed.

Which brings us to the question: Shouldn’t the Fed be giving a bit more thought to raising those rates, rather than lowering them? A rather naughty thought, I know, but sometimes naughty is necessary.

Corporate Belly-Rubbing

Now, these companies, these great hulking beasts of industry…they’re doing rather well for themselves, aren’t they? Estimates suggest a whopping 11.6% jump in earnings for the S&P 500 (^GSPC 1.51%) in the first quarter of 2026. Six quarters of double-digit growth! And those smaller companies, the little nippers, are starting to perk up too.

Rate cuts are supposed to help a struggling economy, aren’t they? But if companies are already stuffing their pockets, does that really suggest weakness? The Fed isn’t exactly in charge of corporate profits, of course, but it does suggest the economy isn’t quite as wobbly as some might claim. A rather robust beast, in fact.

Tariffs and Troubles

Even though the Supreme Court has swatted away most of those Trump tariffs, there’s still talk of slapping duties on foreign imports. Tariffs, you see, are paid by us, the American importer, and those costs eventually land on the shoulders of the consumer. A rather unpleasant trick, wouldn’t you say?

And these geopolitical disruptions, like the one brewing in Iran, always cause a bit of a supply shock. Sanctions, disrupted supply chains…it all adds up to higher prices. And you can’t fix that with rate cuts, my friend. It’s like trying to bail out a sinking ship with a teaspoon.

These things might be temporary, of course, but it wouldn’t be terribly clever to lower rates when the inflation problem is still very much alive and kicking. A bit like offering a sugary treat to a patient with a terrible toothache.

Does the Engine Need a Push?

Let’s look at the numbers, shall we? The U.S. economy grew by 2.1% in 2025. Unemployment is a tidy 4.4%. And inflation is a reasonable 2.4%. By historical standards, those are all perfectly healthy numbers. A rather well-oiled machine, wouldn’t you say?

These fundamentals suggest keeping policy rates exactly where they are. But with those inflationary pressures tilting upwards, the Fed might be tempted to nudge those rates a bit higher before lowering them. A bit of a gamble, perhaps, but sometimes a gamble is necessary.

The Fed might ultimately decide to lower rates before the year is out. A lot can happen in nine months. But I suspect investors would be wise not to dismiss the possibility that the Fed might need to raise rates at some point. The futures market, bless its optimistic heart, is currently giving that a 0% chance. I, however, think the odds are considerably higher. A rather mischievous thought, wouldn’t you agree?

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2026-03-21 15:02