Are raising inflation fears questioning expected Fed rate-cuts?

“From soaring prices at gasoline pumps to high interest rates on the credit cards used to pay for that purchase, your wallet is facing a potentially bruising economic impact in the very near future.

The escalating conflict in the Middle East risks hiking oil prices and energy costs just as the Federal Reserve is weighing interest-rate cuts amid a gradually cooling labor market and sticky inflation, especially in services sectors such as health care and shelter.

Supply disruptions especially involving oil-transit routes raise the geopolitical concerns of global traders and U.S. central bankers.

If oil spikes while core inflation remains stubborn, interest-rate cuts become harder to justify. Plus, if oil surges and inflation expectations tick up, markets may need to reprice easing bets for 2026.

The potential inflationary impact had traders pricing 0.56% of Fed rate cuts this year on March 2, down from 0.6% on Feb. 27 — before the U.S.-Israeli attack on Iran, Bloomberg reported.

“It’s probably an early sign that the market thinks the Fed will be less inclined to cut rates if this oil price surge is sustained and ultimately translates into higher U.S. inflationary pressure,” said Gareth Berry, a strategist at Macquarie Group in Singapore. 

Potential inflation risks from Mideast conflict

There won’t be a major inflationary hit as long as the Mideast conflict is not prolonged, JPMorgan Chase CEO Jamie Dimon told CNBC March 2.

The United States is more protected from energy shocks than many of its allies due to domestic oil and gas production. 

However, the global impact on trade, prices, and investment could crimp what has been a bullish growth outlook for 2026.

For every $10 a barrel increase in the cost of oil, the price at the pump could rise by up to 30 cents a gallon, Amy Myers Jaffe, director of the Energy, Climate Justice and Sustainability Lab at New York University, told The New York Times March 2.”