Financial markets are now predicting that the US Federal Reserve (Fed) will take a more aggressive approach in maintaining high interest rates. The surge in crude oil prices due to the conflict in the Middle East has sparked fresh inflation concerns, forcing traders to reduce their expectations for a rate cut in 2026.
Data from the CME FedWatch Tool shows that the probability of a June interest rate cut has fallen to 30.7%, compared to almost 50% the previous week. Most traders are now shifting their bets to expect a cut only in July due to global energy supply uncertainty.
A Goldman Sachs analyst warned that every 10% increase in oil prices will have a significant impact on the Consumer Price Index (CPI). Rising fuel and transportation costs are feared to spread to other goods and services sectors, making it more difficult for the central bank to curb inflation.
The minutes of the Fed's January meeting revealed divisions among committee members. However, most members tend to support cuts if inflation declines, but there are a few members who have voiced their willingness to raise interest rates again if price pressures remain persistently high.
At this point, the Fed is expected to maintain the current interest rate at its March meeting. The Fed has cut three times in 2025, so the central bank is now in a watchful eye to ensure price stability before continuing any monetary policy easing this year.
