Markets Rebound on Potential Iran-U.S. Talks, But Economic Data Remains Mixed

Equities recover some losses as reports emerge of openness to de-escalation, but manufacturing costs surge and rate cut outlook shifts.

Published on Mar. 4, 2026

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Equity markets rebounded on Monday as reports emerged that Iran's Ministry of Intelligence signaled openness to talks with the U.S. CIA regarding a potential de-escalation of conflict in the Middle East. This offered a temporary reprieve from concerns that escalating tensions would further disrupt global energy supplies and delay anticipated interest rate cuts by the Federal Reserve. However, underlying economic data continued to present a mixed picture, with the ISM manufacturing PMI rising but also revealing a significant surge in price pressures.

Why it matters

The potential for de-escalation between Iran and the U.S. is crucial for stabilizing global energy markets and the economic outlook. However, the persistent inflation concerns highlighted by the ISM data could complicate the Federal Reserve's policy path, potentially delaying or reducing the scope of anticipated interest rate cuts.

The details

The Dow Jones Industrial Average trimmed losses from roughly 1,000 points to close down 363 points, while broader equity indexes also recovered ground. Sentiment was further bolstered by comments from former President Trump, who stated the U.S. had significantly degraded Iranian military capabilities and announced measures to stabilize energy markets. The ISM manufacturing PMI rose to 52.4 in February, exceeding forecasts, but the report also revealed a significant surge in price pressures, with the prices-paid index jumping to 70.5 from 59, its highest level since June 2022. This increase in manufacturing costs is fueling concerns about persistent inflation.

  • The ISM manufacturing PMI data was released on March 4, 2026.
  • Former President Trump made his comments on the same day, March 4, 2026.

The players

Federal Reserve

The central banking system of the United States, responsible for monetary policy and regulating the financial system.

Iran's Ministry of Intelligence

The intelligence agency of the Islamic Republic of Iran, responsible for domestic and foreign intelligence gathering and analysis.

U.S. Central Intelligence Agency (CIA)

The principal intelligence agency of the United States federal government, responsible for collecting, processing, and analyzing national security information from around the world.

Donald Trump

The 45th President of the United States, who served from 2017 to 2021.

Institute for Supply Management (ISM)

A non-profit organization that conducts surveys and publishes indices related to the manufacturing and services sectors of the U.S. economy.

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What they’re saying

“We must significantly degrade Iranian military capabilities and take measures to stabilize energy markets, including political risk insurance and financial guarantees for maritime trade in the Gulf through the U.S. International Development Finance Corporation. The U.S. Navy could also escort oil tankers through the Strait of Hormuz if necessary.”

— Donald Trump, Former President of the United States (archyde.com)

“Inflation remains too elevated, and additional rate cuts are not appropriate at this time.”

— Jeffrey Schmid, President, Kansas City Federal Reserve (archyde.com)

“The duration and magnitude of the Iran conflict shock will determine whether easing remains appropriate.”

— Neel Kashkari, President, Minneapolis Federal Reserve (archyde.com)

What’s next

The ISM services PMI reading later on March 4, 2026, and the jobs report on Friday will provide further signals on economic momentum and the potential impact on the Federal Reserve's policy path.

The takeaway

The markets' rebound on the potential for Iran-U.S. de-escalation offers a temporary reprieve, but the underlying economic data remains mixed. The surge in manufacturing costs and the shifting rate cut outlook highlight the persistent inflation concerns that could complicate the Federal Reserve's policy decisions in the coming months.