Oil Prices Surge Sparks Inflation Concerns as Fed Rate Cut Expectations for 2026 Fall Below 1 Cut for First Time

Rising oil prices trigger inflation concerns; Fed’s rate cut expectations for 2026 drop below 1% for the first time. Caixin, March 13 — Over the past few days, traders have quickly abandoned expectations that the Federal Reserve will ease monetary policy in early summer. This shift in outlook comes amid the US-Israel attack on Iran and oil prices soaring to around $100 per barrel. According to the latest probabilities from FedWatch, traders in the federal funds futures market have largely ruled out a rate cut in September, now believing the Fed may only cut once in December. Meanwhile, interest rate swap contracts tied to the Fed’s policy meeting dates show that swap traders are no longer 100% certain the Fed will cut rates this year. Overnight, swap traders only expected a 17 basis point cut this year — less than one 25 basis point cut. Later Wednesday evening, this expectation was around 40 basis points. Whether this outlook can be maintained may depend on developments in the Middle East. If tensions ease, markets could return to normal and hopes for further easing may reignite. But if shipping through the Strait of Hormuz remains disrupted, soaring oil prices could likely push up global interest rates.