The 10-year U.S. Treasury yield hovered near 4.28% Friday after economic data painted a murky picture of the nation’s growth and inflation. Meanwhile, oil prices climbed above $100 a barrel as tensions in the Middle East escalated, rattling markets and investor confidence.

Mixed Signals from the Economy

The U.S. Economy showed signs of slowing down sharply in the fourth quarter of last year. The Bureau of Economic Analysis revised GDP growth to just 0.7%, down from an earlier estimate of 1.4% and well below economists’ expectations of 1.5%. That slowdown follows a strong 4.4% growth in the previous quarter.

That sharp downgrade caught investors off guard. The slow growth suggests the economy isn’t as resilient as once thought, especially heading into the new year.

But the inflation picture is far from settled. The Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, showed core inflation — which excludes food and energy — rising 0.4% in January and 3.1% over the past year.

That’s higher than December’s reading and remains above the Fed’s 2% target.

Inflation numbers matter a lot since they influence Fed policy decisions. The central bank will probably hold interest rates steady at the upcoming policy meeting, but the stubborn inflation pressures suggest rate cuts are unlikely this year. Some analysts even believe the Fed might consider raising rates again if the inflation trajectory worsens.

Oil Prices Surge Amid Middle East Conflict

Oil markets are under pressure as geopolitical tensions in the Middle East escalated further into their third week. Brent crude closed Friday at $103.14 per barrel, up from $100 the day before. U.S. West Texas Intermediate crude futures also climbed above $98 a barrel.

That jump happened even though the International Energy Agency released a historic 400 million barrels from global reserves to ease supply worries. The move showed how nervous investors are about the conflict lasting longer than expected and disrupting supply chains.

Recent attacks on oil tankers in the Persian Gulf and the temporary shutdown of key export terminals in Iraq have added fuel to the fire. Britain’s maritime security agency reported a container ship struck near Dubai, while Oman evacuated a major export terminal. Bahrain accused Iran of targeting its fuel storage facilities.

These events tightened energy markets and raised fears about longer supply shortages. The International Energy Agency has lowered its forecast for oil supply growth this year from 2.4 million barrels per day to just 1.1 million barrels.

Market Reactions and Broader Implications

U.S. Treasury yields reflected the mixed economic signals. The 10-year Treasury yield edged up slightly to 4.285%, while the 30-year bond yield rose more than 2 basis points to 4.91%. Meanwhile, the 2-year note, which is sensitive to Fed policy expectations, dropped over 2 basis points to 3.734%.

Stocks responded cautiously. The Dow Jones Industrial Average closed slightly lower, while the S&P 500 and Nasdaq finished mostly flat. Some sectors suffered, with software stocks like Atlassian and Workday sliding over 3%, and consumer names like Campbell’s falling more than 7% after weak earnings. On the flip side, Oracle surged over 9% following strong quarterly results and raised revenue guidance.

Fitch Ratings weighed in with a warning: if oil prices stay around $100 a barrel, global GDP would take a hit of 0.4% after a year, while inflation in the U.S. And Europe could climb by up to 1.5 percentage points. That would add pressure on central banks already grappling with sticky inflation.

Markets expect the Fed won’t cut rates anytime soon. Investors expect the Fed to maintain current rates through the first half of the year, shifting the focus to how the central bank will handle inflation risks fueled by soaring energy costs.

Looking Ahead

The ongoing Middle East conflict remains a wild card. If it drags on or intensifies, oil prices could climb even higher, pushing inflation further out of control and forcing the Fed to reconsider its stance.

Meanwhile, the economy’s slower growth and stubborn inflation create a tricky environment for policymakers. The coming months will be a test of the Fed’s ability to balance growth concerns against inflation risks.

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Investors are caught between slowing growth and rising inflation, and oil prices could push things one way or the other. The Fed’s decisions this year will likely influence market trends through 2026.