Next week, all eyes will be on the FOMC meeting, as rising stagflation risks put the Federal Reserve’s dual mandate under pressure.

"We expect the Committee to hold rates steady and emphasize optionality, with the updated SEP likely to show that expectations for slightly higher inflation and lower growth will net out to an unchanged policy path," analysts at Wells Fargo commented.

"Elsewhere, activity in interest rate sensitive sectors remains touch and go; we forecast industrial production slipped in February and new home sales rose in January."

The first revision of Q4 GDP showed a major slowdown, complicating the Federal Reserve’s policy decisions.

Jeffrey Roach, Chief Economist at LPL Financial in Charlotte, said, “Investors need to see monthly prints stay consistently in the range of 0.1% and 0.2% before they can realistically believe inflation risks are mostly contained.”

Roach noted that underlying inflation pressures are likely to remain elevated in the coming months, influenced in part by disruptions from the war in the Middle East, and that the Fed’s upcoming Summary of Economic Projections may reflect heightened uncertainty on both inflation and employment.

US markets kicked off Friday on a positive note, with the Dow Jones Industrial Average climbing 166 points, or 0.4%, to 46,844. The S&P 500 and Nasdaq followed suit, each up 0.4%, while the Russell 2000 led the gains with a 0.9% jump.

Investors are digesting a mix of economic data that painted a slightly softer picture for the US economy at the start of the year. The Bureau of Economic Analysis revised fourth-quarter GDP growth to just 0.7%, down from the previously reported 1.4%, reflecting a noticeable slowdown from the robust 4.4% expansion seen in the third quarter of 2025.

Meanwhile, inflation measures remained in check. The January Personal Consumption Expenditures (PCE) index showed prices rising 0.3% month-over-month, keeping the Federal Reserve’s inflation gauges relatively stable—data that predates the outbreak of the Middle East conflict.

Crude oil prices eased Friday, with West Texas Intermediate falling 2% below $94 a barrel and Brent dipping just under $100 after touching that milestone earlier in the session. Labor market signals were mixed: job openings in January totaled 6.94 million, beating expectations, even as the pace of quits and layoffs remained muted.

With markets digesting a combination of slower economic growth, steady inflation, and softer energy prices, traders are cautiously optimistic heading into the weekend.

Inflation in the United States came in largely in line with expectations in the latest data tied to the Federal Reserve’s preferred price gauge.

The Personal Consumption Expenditures (PCE) price index rose 2.8% year-over-year, slightly below estimates of 2.9%, while increasing 0.3% month-over-month, matching forecasts. Core PCE, which excludes food and energy, climbed 3.1% annually and 0.4% from the previous month, both in line with expectations.

Consumer activity remained steady. Personal spending increased 0.4% in February, slightly ahead of the 0.3% estimate, while personal income rose 0.4%, missing expectations for a 0.5% gain. Real personal spending, which adjusts for inflation, rose 0.1%, marginally above forecasts for a flat reading.

Separately, U.S. economic growth was revised lower, with fourth-quarter GDP adjusted down to an annualized 0.7%, below expectations for 1.4%, indicating weaker momentum in the closing months of the year.

Wall Street is expected to open higher after a volatile trading week as the conflict in the Middle East nears the end of its second week.

Futures for the Dow Jones are pointing to a 0.3% gain when the market opens, with those for the S&P 500 and the Nasdaq close behind.

After closing above $100 a barrel for the first time since August 2022, benchmark Brent crude futures have since cooled off.

Saxo Markets' Neil Wilson points out that crude oil prices dipped by around 2% after India stated it has an oil tanker moving out of the Strait of Hormuz. Brent crude slipped below $99 a barrel. WTI futures fell 2.2% to $93.64.

"Too early to comment or speculate on what this means, but markets are still very much trading the headlines and keen to latch on to any shred of good news," Wilson commented.

The recovery was mirrored in Europe: London's FTSE 100 erased its morning losses to trade about 0.2% firmer by lunchtime, Frankfurt's DAX also turned around to trade a few points higher, and the CAC 40 in Paris was flat.

Asian markets, meanwhile, closed lower, with Seoul’s Kospi down 1.7%, Tokyo's Nikkei falling 1.2%, the Hang Seng in Hong Kong losing 1%, and the SSE Composite in Shanghai closing 0.8% lower.