Recent geopolitical developments have added to market volatility and increased the range of potential outcomes for inflation, interest rates, and growth. In this update we offer perspective on the added risks stemming from the conflict with Iran, what we are watching in the markets, and how investors can stay disciplined. Periods like this can be challenging, but they can also reward long-term investors who remain diversified, maintain appropriate liquidity, and rebalance thoughtfully when prices move sharply. We’re here to help you navigate the cross-currents and stay focused on your plan.
Geopolitical Risks: The Iran Conflict
A key source of uncertainty is the evolving conflict with Iran and the risk of a broader regional spillover. Markets, particularly energy, have been volatile as investors assess the likelihood of disruption to oil supply and shipping routes. Reports of retaliatory actions and an increased security premium around key transit corridors, including the Strait of Hormuz, have contributed to risk aversion. If disruptions to shipping or production persist or intensify, the most likely impact to the global economy would be higher energy and transportation costs, which could lift near-term inflation and weigh on growth expectations. The duration and scope of the conflict, and any sustained impact on maritime traffic through the Strait, will be central to the ultimate economic impact.
Inflation and Economic Outlook
Short-term inflation expectations have moved higher alongside oil and gas prices. Notably, 5- and 10-year inflation expectations have increased only modestly, suggesting markets currently view recent pressures as near-term rather than structural. While inflation had shown signs of moderating, the conflict involving Iran—along with broader policy uncertainty—adds risk to the outlook for prices and growth. Depending on the duration and scope of these developments, uncertainty could weigh on economic activity, at least for a time.
Interest Rates and U.S. Dollar Movements
Interest rates have responded to both the economic backdrop and recent geopolitical developments. The risk of higher near-term inflation has led investors and central banks to reassess their outlook, and yields have drifted higher. Expectations on the timing of potential Fed funds cuts have also shifted, contributing to higher short-term rates. Mortgage rates, which had recently moved below 6%, have risen and may impact borrowing costs for households and businesses. The U.S. dollar has fluctuated as well, strengthening at points as investors have sought liquidity and perceived safety. Changes in interest rates and the dollar can influence global trade, commodity prices, and the performance of international investments.
Implications for Investors
Periods like this can feel headline-driven, but the market’s message is consistent: a wider range of outcomes tends to increase dispersion across asset classes, sectors, and individual securities. For investors, the key questions are whether energy-driven inflation proves temporary or persistent, whether financial conditions tighten enough to slow growth, and whether the U.S. dollar remains firm as global investors prioritize liquidity. These forces often shape risk appetite before they show up clearly in the economic data.
Conclusion
Our assumption is that markets will continue to adjust to a wider range of outcomes in the weeks ahead, with geopolitics influencing near-term inflation dynamics and expectations for interest rates. History also suggests that volatility can create opportunity for disciplined, long-term investors, particularly when price moves outpace changes in underlying fundamentals. The right response is rarely a dramatic shift; it is usually a recommitment to process and planning, including appropriate liquidity and thoughtful rebalancing as markets move.
We will continue to share updates as we track developments in the region and their impact on energy markets, inflation expectations, and overall financial conditions. If you would like to revisit your plan, discuss near-term cash needs, or talk through what these cross-currents may mean for your portfolio, please reach out—our team is here to help you make decisions with perspective.
Views are as of March 2026 and are subject to change based on market conditions and other factors. The opinions expressed herein are those of the author(s), and do not necessarily reflect those of Eastern Bankshares, Inc., Eastern Bank or any affiliated entities. Views and opinions expressed are current as of the date appearing on this material; all views and opinions herein are subject to change without notice based on market conditions and other factors. These views and opinions should not be construed as a recommendation for any specific security or sector. This material is for your private information, and we are not soliciting any action based on it. The information in this report has been obtained from sources believed to be reliable but its accuracy is not guaranteed. There is neither representation nor warranty as to the accuracy of, nor liability for any decisions made based on such information. Past performance does not guarantee future performance. Eastern Bank does not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions