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Iran War Sparks Rate Cut Doubts
13 Mar
Summary
- Interest rate cut expectations for 2026 have significantly diminished.
- The Iran war is fueling concerns about rising energy prices and inflation.
- Traders now anticipate only one Fed rate cut by December 2026.
The escalating conflict in Iran has significantly impacted financial markets, dampening expectations for interest rate cuts by the US Federal Reserve this year. Prior to the conflict's eruption nearly two weeks ago, traders had predicted multiple rate reductions, beginning as early as June 2026.
However, current market sentiment, reflected in the CME Group's FedWatch tool, suggests traders now foresee only a single rate cut in December. The Federal Reserve is scheduled to announce its next interest rate decision on March 18, with the market widely expecting no change.
Adding to inflation concerns, traders will closely monitor the release of January's personal consumption expenditures price index on March 13 at 8:30 a.m. ET. Economists forecast this key inflation gauge to show a monthly increase of 0.3% and an annual rise of 2.9%.
