The market is beginning to reprice interest rate hike expectations, with inflation concerns and geopolitical tensions reshaping the Federal Reserve's path.

Golden Finance reported that on March 29, “describing the recent market shift in expectations for central bank monetary policy as a ‘180-degree turn’ seems insufficient.” Just a few weeks ago, the market was still expecting the Federal Reserve to make multiple rate cuts in 2026, but it has now clearly begun to price in possible rate hikes this year.
The latest data from the CME FedWatch Tool shows that the probability of the federal funds rate being above the current range of 3.50%-3.75% by the end of this year is close to 30%, while the probability of a rate decrease has dropped to 2.9%.
This shift in expectations is primarily driven by inflation concerns triggered by the energy markets. Since the escalation of the situation in the Middle East at the end of February, Brent crude oil prices have risen from about $70 per barrel to the current level of around $111. At the same time, long-term U.S. Treasury yields have also surged, with the 10-year Treasury yield rising from less than 4% a few weeks ago to about 4.40%.
The newsletter “Crypto is Macro Now” pointed out: “Unfortunately, food and energy prices will continue to rise and remain high for some time, at least until the shipping chaos in the Middle East is resolved. Even if a peace agreement were reached tomorrow (which is unlikely), it would still take months to alleviate.”