A decisive week is expected as market participants await guidance from the Fed, which must balance its mandate of promoting full employment and maintaining price stability during a period of elevated geopolitical uncertainty.

Lower interest rates can support hiring and economic growth but may also spur inflation. Higher rates can restrain inflation but can slow economic activity and weaken the labor market. These goals can conflict and unfold on different timelines while global events add complexity.

The conflict in Iran represents a market shock with broad implications. Recent moves in the oil market were notable and have direct effects on energy inflation which flows into other sectors.

Rising oil prices increase transportation costs and raise manufacturing expenses. Energy cost increases also affect fertilizer production because natural gas is a key input. Higher fertilizer costs raise farming expenses which in turn can push food prices higher. These transmission channels link energy market shocks to broader consumer prices.

The Fed is not expected to reduce rates this week. Market participants are seeking a timeline for future easing but some analysts have adjusted their rate cut expectations in response to the recent energy price shock which is viewed as an inflationary development. The situation is further complicated by a labor market showing gradual strength.

Economic calendar items for the week include:

• CPI & PPI (Wed)
• FOMC / Rate Decision / Fed Press Conference (Wed)
• Fed Powell Speech (Sat)

On the market structure front the volatility index VIX is trading higher which signals elevated uncertainty. SPY finished last week just above its 200 day moving average which is a widely observed support area heading into the coming sessions.

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