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(WASHINGTON) -- The Federal Reserve is set to announce its latest decision on interest rates on Wednesday as the central bank weathers the highest inflation in three years.

The announcement will mark the first possible adjustment of the benchmark interest rate since Trump nominee Kevin Warsh began his four-year term as Fed chair last month.

The policy move is also set to arrive at a moment of flux for the nation’s economy, just days after an agreement between the United States and Iran offered hope for some price relief.

The U.S.-Iran accord, set to be formally signed on Friday, came as gasoline prices fell below $4 a gallon for the first time since March. Still, fuel costs stand well above pre-war levels, and an array of grocery prices remain elevated.

Futures markets overwhelmingly expect the Fed to hold interest rates steady when policymakers meet on Wednesday, according to the CME FedWatch Tool, a measure of investor sentiment.

In recent weeks, however, odds have risen for a potential interest rate hike by the end of 2026, the tool showed, granting a roughly four in 10 chance of a quarter-point increase in December.

The shift in expectations came after a stronger-than-expected jobs report earlier this month showed robust hiring in May. In theory, a resilient labor market could afford central bankers leeway to raise interest rates in an effort to dial back inflation, since elevated borrowing costs risk a hiring slowdown.

Inflation jumped for a third consecutive month as the Iran war continued to drive up prices in May, surpassing 4% for the first time in three years

The Middle East conflict prompted the Iranian closure of the Strait of Hormuz, a maritime trading route that facilitates the transport of about one-fifth of global oil supply. The standoff triggered one of the largest oil shocks ever recorded, sending gasoline prices surging.

On Monday, President Donald Trump announced a U.S.-Iran deal that included plans to reopen the strait. Iranian Deputy Foreign Minister Kazem Gharibabadi confirmed the deal had been finalized and said it would be signed in Switzerland on Friday. Oil prices fell to their lowest level since March.

The benchmark rate stands at a level between 3.5% and 3.75%. That figure marks a significant drop from a recent peak attained in 2023, but borrowing costs remain well above a 0% rate established at the outset of the COVID-19 pandemic.

The rate decision will be the first major policy move overseen by Warsh, who will address reporters during a customary press conference minutes after the central bank issues its announcement.

During his term as a Fed governor in the late 2000s and early 2010s, Warsh gained a reputation as an interest-rate "hawk," meaning he generally preferred higher interest rates as a means of ensuring low and stable inflation.

Last year, Warsh voiced support for lower interest rates. At his Senate confirmation hearing in April, Warsh emphasized the threat posed by elevated inflation.

"When inflation surges -- as it has done in recent years -- grievous harm is done to our citizens, especially to the least well-off," Warsh said.

Bucking typical norms, former Fed Chair Jerome Powell Powell will cast a vote on interest rates as a member of the Fed's 12-person policymaking board.

Powell said he would stay on at the central bank's board of governors after his term as chair expired as an investigation into the Fed's office renovation continues.

The Department of Justice moved to drop a criminal probe into Powell in April, calling on the Fed's inspector general to carry out the investigation into cost overruns tied to the renovation. Powell will remain on the Fed's board for an indeterminate length of time, he said last month.

The criminal investigation into Powell focused on alleged false testimony to Congress about an office renovation. Powell, who was appointed by Trump in 2017, has rebuked the probe as a politically motivated effort to influence interest-rate policy. Trump denied any involvement in the criminal investigation.

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NEW YORK (AP) — Stock markets rallied worldwide Monday, and oil prices eased after the United States and Iran reached a tentative deal to extend their ceasefire and reopen the Strait of Hormuz to get the global flow of crude going again.

The S&P 500 rose 1.7% on hopes that this time, the announcement of an Iran-U.S. agreement will mean a long-term fix to a conflict that has worsened inflation around the world. The Dow Jones Industrial Average climbed 468 points, or 0.9%, to a record, and the Nasdaq composite jumped 3.1%.

Stocks got a lift after the price for a barrel of Brent crude oil fell 4.8% to $83.17, back to where it was in early March. While that’s still above its price of roughly $70 from before the war, it’s lower than the $100 plus it cost just a few weeks ago. The hope is that lower oil prices will take pressure off households and businesses, which have had to pay higher prices for everything from food to fuel to fertilizer because of the war with Iran.

Iran confirmed the deal, but it does not include a final agreement on issues like Iran’s nuclear program. Negotiations on that are expected to continue over the next 60 days, which leaves opportunity for hiccups that could derail the agreement. And even if the Strait of Hormuz does fully reopen on Friday as expected, it will likely take months for the energy industry to get back to full speed.

For now, though, relief swept through financial markets worldwide.

Stocks jump worldwide, and oil prices drop after the U.S. and Iran reach a tentative deal on their war.

Stocks of companies enmeshed in the artificial-intelligence industry also jumped. These stocks have yo-yoed in recent weeks, going from roaring to records to suddenly turning lower. The concern is whether such stocks shot too high, too fast because of AI mania, and their careening moves have sometimes reversed direction by the hour.

Micron Technology rallied 10.8%, and Advanced Micro Devices rose 7%. Nvidia’s climb of 3.5% was the strongest force pushing the S&P 500 upward because the AI chip company is Wall Street’s most valuable company, giving it more weight on the index than any other.

SpaceX, Elon Musk’s rocket company that also owns the AI company xAI, rose 19.6% in its second day of trading on Wall Street. Its successful debut on the Nasdaq suggested plenty of demand still exists among investors for AI. The market has given SpaceX a total value of more than $2.1 trillion, making it bigger than Exxon Mobil, Bank of America and Coca-Cola combined.

In the bond market, Treasury yields eased on hopes that lower oil prices will remove pressure on central banks to raise interest rates.

The yield on the 10-year Treasury slipped to 4.47% from 4.48% late Friday.

Europe’s central bank last week became the first major one in the world to raise interest rates because of the war with Iran. High interest rates can keep a lid on inflation, but they also slow economies and undercut prices for all kinds of investments, including stocks and cryptocurrencies. They hit investments seen as the most expensive in particular, and some critics are calling the AI industry a bubble where investment inflated too far.

The Fed will announce its latest decision on interest rates later this week, which will be the first under its new chair, Kevin Warsh. Traders see it as a near certainty that the Fed will leave its main interest rate steady after its two-day meeting ends Wednesday.

Traders had been raising bets that the Fed may have to raise interest rates this year because of how much inflation has accelerated and how solid the U.S. job market remains. But the tentative deal between the United States and Iran means traders are now betting on only a 57% chance of a hike this year, down from 71% a week ago, according to data from CME Group.

Elsewhere on Wall Street, Roku fell 1.9% after the company announced that Fox Corp. is buying the streaming pioneer in a cash-and-stock deal valued at approximately $22 billion.

Roku’s stock had already soared 20% Friday, when media reports emerged about a deal, which will give Fox access to the Roku channel, first-party data and more than 100 million global streaming households. Fox’s stock fell 16.8%.

All told, the S&P 500 rose 122.83 points to 7,554.29. The Dow Jones Industrial Average climbed 468.77 to 51,671.03, and the Nasdaq composite jumped 795.10 to 26,683.94.

In stock markets abroad, indexes climbed in Asia and Europe. Japan’s Nikkei 225 leaped 5% for one of the world’s biggest gains and finished at a record.

“This is great news,” said Takashi Hiroki, chief strategist at Monex. “Buying by foreign investors is leading the market with expectations of easing tensions around the situation in the Middle East.”

South Korea’s Kospi soared even more, 5.2%, thanks in part to continued rallies for AI winners like Samsung Electronics.

London’s FTSE 100 was an outlier and slipped 0.4%.

(NEW YORK) -- Oil prices on Monday fell to their lowest level since March after U.S. officials announced an agreement between the United States and Iran.

West Texas Intermediate futures price, the benchmark index for U.S. trading, registered at about $80.40. That figure, which amounted to a 5% drop on Monday, marked the lowest price since March 5, just a week after the outbreak of the Iran war.

Stock prices, meanwhile, climbed on hopes of a resolution to the Iran war. The Dow Jones Industrial Average jumped 530 points, or 1%, while the S&P 500 increased 1.4%. The tech-heavy Nasdaq rose 2.3%.

Gas prices have fallen toward $4 per gallon in recent weeks, nearing the milestone as oil costs have eased in response to negotiations between the U.S. and Iran.

The national average price of a gallon of gas stands at $4.06, marking a decline of 46 cents, or 10.2%, over the past month, AAA data showed. Gas prices, however, remain $1.08 higher than where they stood before the Iran war.

The Middle East conflict prompted the Iranian closure of the Strait of Hormuz, a maritime trading route that facilitates the transport of about one-fifth of global oil supply. The standoff triggered one of the largest oil shocks ever recorded, sending gasoline prices higher.

President Donald Trump said in a Sunday social media post that the U.S. and Iran had reached a deal that will open up the strait.

"I hereby fully authorize the toll free opening of the Strait of Hormuz, and, simultaneously herewith, authorize the immediate removal of the United States Naval blockade," Trump wrote.

"Ships of the World, start your engines. Let the oil flow!" he added.

Iranian Deputy Foreign Minister Kazem Gharibabadi confirmed the deal had been finalized and said it would be signed in Switzerland on Friday.

Trump said the strait would open after the formal signing of the deal on Friday. The oil flow is linked to mine removal, Trump noted.

Crude oil is the main ingredient in auto fuel, accounting for more than half of the price paid at the pump, according to the federal U.S. Energy Information Administration.

The U.S. is a net exporter of petroleum, meaning the country produces more oil than it consumes. But since oil prices are set on a global market, U.S. prices move in response to swings in worldwide supply and demand.

ABC News' David Brennan and Isabella Murray contributed to this report.

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