GOOD MORNING.

The Federal Reserve kept its benchmark interest rate unchanged Wednesday at 3.5% to 3.75%, as expected. But what followed the announcement was not reassuring. Fed Chair Jerome Powell stepped to the podium and told the country that the central bank has not been making as much progress on inflation as it had hoped. Markets fell sharply on that word.

"The forecast is that we will be making progress on inflation, not as much as we had hoped, but some progress on inflation," Powell said.

The timing matters. Wednesday was not just a Fed day. It was also the day the government released February's Producer Price Index, a measure of what businesses pay before costs get passed on to consumers. Headline PPI rose 0.7% month over month and core PPI rose 0.5%, both well above forecasts of 0.3%. That report landed just before the Fed decision and rattled markets before Powell even spoke.

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The combination of hot producer prices and a Fed admitting slower-than-expected inflation progress told investors one clear thing: rate cuts are not coming soon. Before the Iran war began, a full rate cut had been priced into markets by July. Heading into this decision, a full cut was not priced in for all of 2026.

Powell declined to use the word stagflation when asked directly. "I always have to point out that that was a 1970s term, at a time when unemployment was in double figures and inflation was really high," he said. He did acknowledge the bind clearly. "The net of the oil shock will still be some downward pressure on spending and employment and upward pressure on inflation," Powell said.

There was one dissent. Governor Stephen Miran voted to cut rates, citing rising concerns about the jobs climate. Governor Christopher Waller, who had voted for a cut in January, this time voted to hold.

One piece of news that got less attention but matters: President Trump issued a 60-day waiver of the Jones Act, a longstanding U.S. shipping law, in an attempt to stabilize oil markets amid the Iran war. The temporary suspension will allow oil, natural gas, fertilizer, and coal to flow freely between U.S. ports.

For retirees and income investors, the practical message is straightforward. Higher rates are here for longer than most people hoped at the start of the year. The bonds you own that were purchased when rates were lower are worth less today. Cash in money market funds and short-term CDs continues to earn a reasonable yield. Dividend-paying stocks in energy and utilities have held up better than the broader market. The next Fed meeting is May 6 to 7. Powell's term as chair ends May 15.

U.S. producer prices rose more than expected in February, with headline PPI increasing 0.7% month over month and core PPI rising 0.5%, both above forecasts of 0.3%. Producer prices measure what businesses pay for goods and services before those costs get passed along to consumers. When producer prices rise, consumer prices typically follow. This report landed Wednesday morning, before the Fed's decision, and immediately pushed Treasury yields higher and stocks lower. It was a reminder that the inflation problem was not created entirely by the Iran war. Underlying price pressure was already building before the conflict began. The data reinforced Powell's message that progress on inflation has been slower than hoped.

Powell's term as Fed chair is scheduled to end on May 15, and President Trump has nominated former Fed Governor Kevin Warsh as his successor. However, Warsh's path to confirmation is not guaranteed. Republican Senator Thom Tillis has vowed to block any Fed nomination until a Justice Department investigation into Powell is concluded. Powell said he would stay on as chairman in a temporary capacity if a successor is not confirmed by the time his term ends. Leadership uncertainty at the Fed rarely moves markets on its own, but it adds another layer of unpredictability to an already complicated policy picture. Warsh is generally seen by markets as a stabilizing choice, though he has not issued recent public statements on where he stands on rates.

WTI crude fell slightly Wednesday to $98.22, while Brent crude settled near $109. The average U.S. national gas price jumped more than five cents on Wednesday to $3.84 per gallon, its highest level since September 2023. The Jones Act waiver announced by the White House may help ease domestic fuel distribution somewhat over the next 60 days, but it does not address the core supply problem, which is the ongoing disruption to global shipping through the Strait of Hormuz. Until commercial tanker traffic normalizes in the Gulf, energy prices will remain elevated, and the inflation readings the Fed watches most closely will keep reflecting that pressure.