The Dow Jones Industrial Average posted a slight loss on Wednesday as investors digested the Federal Reserve’s latest interest rate decision alongside escalating geopolitical tensions in the Middle East.

As widely anticipated, the Fed kept its benchmark interest rate unchanged at 4.25% to 4.5%. However, Chair Jerome Powell’s tone suggested a cautious outlook moving forward. While the central bank still projected two rate cuts later this year, it also flagged potential economic headwinds, including slowing growth and persistent inflation.

In its updated projections, the Fed trimmed its 2025 GDP growth forecast to 1.4% and revised core inflation expectations upward to 3.1%. Powell acknowledged that recent tariffs imposed by President Donald Trump could affect inflation but emphasized the uncertainty around their long-term impact. “The size, duration, and timing of tariff effects are unclear,” Powell said during a post-meeting press conference. “That’s why we believe staying the course is the most prudent approach for now.”

Market reaction to the announcement was muted. The Dow slipped 44.14 points, or 0.10%, closing at 42,171.66. The S&P 500 edged down 0.03% to finish at 5,980.87, while the Nasdaq Composite gained 0.13%, closing at 19,546.27.

Meanwhile, geopolitical developments continued to cast a shadow over investor sentiment. The conflict between Israel and Iran entered its sixth day, fueling concerns about potential U.S. involvement. Iran’s Supreme Leader Ayatollah Ali Khamenei issued a strong warning against American intervention, vowing “irreparable damage” in response.

Despite the rising tensions, some analysts believe markets are downplaying geopolitical risks. “Investors seem inclined to brush off these threats,” said Zachary Hill, head of portfolio management at Horizon Investments. “That approach has paid off historically, and it appears to be the prevailing mindset today.”

President Trump, addressing reporters outside the White House, suggested that Iran was open to diplomatic talks, even hinting at a possible delegation visit to Washington. “They want to negotiate,” Trump said. “That’s a bold move on their part.”

As global uncertainties loom, investors appear to be treading cautiously, weighing central bank policy signals against the backdrop of inflationary pressures and escalating geopolitical risks.

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