Given the backdrop of war and oil price volatility, investors’ focus later today will be on whether Federal Reserve officials consider the inflationary implications of the oil shock significant enough to alter their forecast for one U.S. interest rate cut this year.

The energy spike exacerbates an already deteriorating inflation picture.

The Fed will get another important glimpse of the underlying pre-Iran war inflation pressures from the February producer price report due today.

FED PLOT UNFOLDS

Oil prices ended up more than 3% on Tuesday amid fresh Iranian attacks on Gulf states, but eased early on Wednesday as countries sought alternative routes for oil exports amid the continued blockage in the Strait of Hormuz.

Those routes include pipelines that bypass the strait — notably Saudi Arabia’s East-West pipeline to the Red Sea — as well as Turkey’s Ceyhan port, where exports will be resumed after a deal was struck between the Iraqi government and Kurdish authorities.

But the scramble for alternatives also shows that exporters see little chance of a swift end to the conflict or a resumption of normal flows.

Reflecting that, Brent crude remains elevated above $100 per barrel, where it’s settled for four consecutive sessions.

Indeed, the war rages on, with Iran’s security chief Ali Larijani killed yesterday by an Israeli strike, tit-for-tat attacks continuing across the Middle East, and the Trump administration seeing its first high-profile resignation over the war.

Nevertheless, global stocks have taken heart at the marginal reduction in oil price volatility. U.S. stocks finished higher on Tuesday, with all major indexes eking out slight gains, while Asian shares rallied on Wednesday.

U.S. stock futures were in the green ahead of the bell.

Meantime, the dollar eased on the slight risk-on turn yesterday, shedding some of its gains since the start of the war but remaining around 1.5% higher overall against a basket of major currencies.

In tech, anxiety about a global chip shortage is adding to inflation worries — but the AI boom will still muscle its way back into the picture later today as U.S. memory chipmaker Micron Technology reports earnings.

Returning to central banks, while the Fed is expected to stand pat on rates today, perhaps the bigger takeaway will be officials’ commentary around how the Iran war might reshape the U.S. economic picture.

Elsewhere, traders will also hear from the Bank of Canada as it issues its own rate decision today, while the Bank of Japan is set to begin its two-day monetary policy meeting.

The Fed's focus on Wednesday will be on how it signals future policy caution around this month's oil shock.

But in the background, investors will be asking how a new chair might change the central bank's approach later this year, not least given current nominee Kevin Warsh's views on reducing the Fed's balance sheet.

One way to engineer that could be to concentrate more of the Fed's Treasury holdings in short-term bills that can then be more easily allowed to roll off as they mature. A more bill-heavy maturity profile is already slowly emerging.

TODAY'S EVENTS TO WATCH

* U.S. Federal Reserve interest rate decision (2:00 PM EDT); Chair Jerome Powell holds a news conference (2:30 PM EDT)

* U.S. February PPI (8:30 AM EDT), January manufacturers' new orders (10:00 AM EDT)

* Bank of Canada interest rate decision; Governor Tiff Macklem holds a news conference

* Bank of Japan begins monetary policy meeting

* U.S. corporate earnings: Micron Technology