A “180” hardly does justice to the recent change in market expectations regarding the central bank’s monetary policy.
Forecasting multiple Federal Reserve rate cuts in 2026 just a few weeks ago, markets have begun seriously pricing in this year’s rate hikes.
Current prices from the CME FedWatch tool show a nearly 30% chance that the federal funds rate will be higher by the end of the year than its current level of 3.50%-3.75%. Meanwhile, the odds of rates falling have plummeted to 2.9%.
The shift has been largely driven by renewed inflation fears linked to energy markets. Since the escalation of tensions in the Middle East in late February, the price of Brent crude oil has risen from around $70 per barrel to its current level of $111. That has helped yields on the long end of the Treasury curve rise sharply, with the 10-year yield rising to the current 4.40% from less than 4% weeks ago.
“Food and energy prices are going to rise tragically and stay high for a while, at least until the complete shipping disaster in the Middle East is resolved,” according to Crypto is Macro Now Newsletter. “Even if a peace agreement were reached tomorrow (unlikely), that would take months at best.”
Even before oil gains, inflation was still well above the Federal Reserve’s 2% target. Core inflation in February reached a year-on-year pace of 2.5% and has not fallen below that 2% level since April 2021.
Longer-term inflation expectations also remain above target, with 5- and 10-year measures at 2.5% and 2.3%, respectively, suggesting markets expect inflation to outpace the Fed’s mandate beyond the immediate term.
“The US economy as a whole will of course benefit from rising energy prices as it is a net exporter,” Crypto is Macro Now continued. “And military spending will skyrocket to replenish hardware, adding more stimulus. Both sectors should help prevent GDP from falling sharply.”
Bitcoin Outperforms, But There’s More to the Story
Still holding in the $65,000-$70,000 area, bitcoin By remaining more or less stable, it has had – on paper – a superior performance since the start of the war with Iran.
Gold, for example, is down about 20% since the US attacks began, while the Nasdaq entered correction territory on Friday by falling more than 10% from its 2026 highs.
But consider what came before. At the beginning of March, gold was in the midst of a historic rally and its price had more than doubled from a year earlier. The Nasdaq was also close to an all-time high, up 50% from its April 2025 lows. Meanwhile, Bitcoin is down about 50% from its early October 2025 record.
Considered on any time frame other than the shortest, bitcoin continues to vastly underperform key assets such as stocks and gold.
