Rates Hold, Uncertainty Remains: A Market Update with Marc Chandler

Today, the Federal Reserve elected to hold rates at the 3.50% - 3.75% range. Hard data may have been enough to keep the Federal Reserve from moving policy today, but indications show no inertia for rates to hold in subsequent meetings. The Federal Reserve is voicing a shift to proactivity and deliverance on a 2% inflation target. To help put this environment into context, Marc Chandler, Chief Market Strategist at Bannockburn Capital Markets, answers a few common questions to help business owners make informed decisions.

Q: Why is inflation elevated?

A: There are various economic explanations, from money supply growth, government deficit spending, and geopolitical developments. Still, much of the recent pressure can be traced to three major supply shocks: the 2020 COVID pandemic, Russia’s invasion of Ukraine, and the US–Israel war on Iran.

The coronavirus pandemic of 2020 fractured global supply chains. Stimulus-fueled goods demand collided with constrained supply. Then, Russia's 2022 invasion of Ukraine delivered a second independent shock. It restricted access to potash and phosphorus fertilizers, lowered crop output globally, and raised costs across agricultural supply chains. More recently, the war in Iran disrupted the supply of a range of industrial supplies in addition to oil and gas, which are also feedstock for pesticides and fertilizer sulfur, helium, and aluminum. Layer on top of that the impact of US tariffs, and the result is a broader pricing environment that remains under pressure.

Q: Beyond oil and gas prices, what should business owners be watching as inflation risks evolve?

A: The unresolved conflict in the Middle East fosters greater volatility and uncertainty. The broadening and intensification of the conflict starting in early July sent oil and gas prices sharply higher, though not (yet) through the earlier peak.

There is another risk looming: Food prices. Most nitrogen fertilizers and pesticides are manufactured from natural gas. Higher fertilizer and pesticide costs flow through to crop prices, then to food manufacturers, then to your menu and supply costs. In addition, weather patterns such as El Niño, can add another layer of volatility by disrupting global growing conditions, contributing to drought in some regions and flooding in others.

A recent regional survey from the New York Federal Reserve found that nearly half of tariff-affected firms are already passing higher costs through incrementally and expect additional increases this year. At the same time, the Bureau of Economic Analysis has announced methodological changes scheduled for September 2026 that would largely offset one another, with one notable exception: portfolio management service prices. That change would place less weight on rising equity prices and more on employment data, specifically total hours worked in the industry. Had the revised methodology been in place in May, it would have reduced the PCE deflator by roughly 15 basis points. 

Q: What is the outlook for US interest rates?

A: The Federal Reserve’s new chair, Kevin Warsh, previously served as a governor on the Fed’s board and has been an outspoken critic of the central bank. After a long stretch of continuity from Bernanke to Yellen to Powell, his leadership may bring a broader re-examination of first principles. Warsh has also been skeptical of forward guidance, which could introduce more volatility into policy expectations and, in turn, short-term rates. For now, the derivatives market is pricing in about 42 basis points of tightening between now and year-end, effectively one rate hike with roughly an 80% probability of a second.

Q: What can business owners do?

A: Best next steps will vary by business, depending on industry, types of investments, risk appetite, and available capital. Options to consider:

• • • Now is the time to revisit fee structures, client agreements, and service terms to ensure they reflect a more variable cost environment.
    • Watch core inflation, not just the headline, because it offers a better read on whether broader pricing pressures may affect hiring, technology investment, and growth plans.
    • Treat rising operating costs, including vendor, benefits, and office-related expenses, as structural considerations rather than temporary disruptions.
    • Amid persistent price pressures, be deliberate about preserving liquidity and maintaining enough flexibility to navigate volatility, pursue strategic opportunities, and support long-term growth.

Inflation may not return to 2021–2022 peaks, but the conditions that made 1985–2019 so unusually stable may not return soon.

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With Marc Chandler’s perspective in mind, the takeaway for business owners is clear: uncertainty may persist, but savvy business owners will seize the volatility by continuing to seek appropriate growth opportunities. Business owners who freeze in the face of uncertainty will fall behind their peers. For more perspectives from Marc, subscribe to receive our next OnPoint podcast episode.

About the Author

Marc Chandler is the chief market strategist at Bannockburn Capital Markets, a division of First Financial Bank. Marc joined Bannockburn in 2018 after spending 14 years as the chief currency strategist at Brown Brothers Harriman, and a career at some of the largest banks on Wall Street. He is an avid writer, and his essays have appeared in Foreign Affairs, Financial Times, and Barron’s. His third book, “Surplus: The History of Too Much and the End of Economic Primacy,” will be published in November by Prometheus Press.