Just a few weeks ago, the interest rate debate in the US focused on how many Federal Reserve rate cuts there would be in 2026. But with the economy showing only weak signs of slowing, inflation still above the central bank’s 2% target and oil prices up 50% in three weeks, rate traders are starting to eye a rate hike as early as April.
According to CME FedWatch, the chances of the Federal Reserve tightening policy at its next meeting in April have increased to 12%. This is up from 0% a week ago and an even sharper reversal from two months ago, when conventional wisdom said a rate cut was likely that month.
February data showed annual headline inflation at 2.4% and core inflation at 2.5%. And those figures were before the Iran war and the subsequent 50% increase in oil prices.
The long end of the bond curve has sold off sharply at the same time, with the 10-year US Treasury bond rising another 10 basis points on Friday to 4.38%, up from less than 4% in early March.
Bond settlement is global. In the UK, 10-year bond yields have risen above 5%, up 15% in the last month, and are at their highest level since 2008.
Bitcoin at the forefront?
The major stock averages haven’t made big moves since the war began, but the declines are starting to pile up. Down another 0.9% today, the S&P 500 is on track for a fourth consecutive weekly decline and is now down more than 5% since the end of February. The Nasdaq fell similarly, including a 1.2% drop on Friday.
“Bitcoin has once again acted as a canary in the macro coal mine,” said Andre Dragosch, European head of research at Bitwise. “At current levels, bitcoin is already pricing in a recession, while many traditional assets are not,” he added.
Bitcoin is still hovering around $70,000 and aside from oil, remains one of the best-performing assets since the war began, while metals continue to show weakening price action, with gold falling another 2% on Friday.
