Teams adjust strategies as inflation concerns and geopolitical factors influence expectations for the Fed.

Tensions in the Middle East have led to discrepancies across asset markets as oil prices remain high and traditional safe havens struggle.

Key Points:

• Markets have shifted from anticipating several Federal Reserve rate reductions to forecasting rate increases due to inflation concerns driven by energy prices.
• While oil prices remain high, gold has seen a significant decline despite being considered a safe haven, and U.S. equities have shown weakness. Bitcoin has seen short-term gains, albeit limited.

A "180" barely encapsulates the recent transformation in market outlook regarding central bank monetary strategies.

Just weeks ago, markets were expecting several Federal Reserve rate cuts in 2026, but they have now begun to factor in potential rate hikes for this year.

Current data from the CME FedWatch Tool indicates nearly a 30% probability that the fed funds rate will exceed its present level of 3.50%-3.75% by year-end. Conversely, the likelihood of rates decreasing has plummeted to 2.9%.

This change has primarily been fueled by renewed fears of inflation linked to energy sectors. Following the escalation of conflicts in the Middle East at the end of February, the price of Brent Crude oil has surged from approximately $70 per barrel to about $111. This increase has significantly raised yields on the long end of the Treasury curve, with the 10-year yield climbing to 4.40% from below 4% just weeks prior.

"Food and energy prices are unfortunately expected to rise and remain elevated for a period, at least until the ongoing chaos in Middle East shipping is resolved," stated the Crypto is Macro Now Newsletter. "Even if a peace agreement were reached tomorrow (which is improbable), it would still take several months at best to stabilize the situation."

Even before the rise in oil prices, inflation was already running well above the Federal Reserve’s target of 2%. Core inflation for February was reported at a 2.5% year-over-year rate and has not dipped below the 2% mark since April 2021.

Long-term inflation expectations also surpass the target, with 5-year and 10-year metrics at 2.5% and 2.3%, respectively, indicating that markets anticipate inflation levels will exceed the Federal Reserve’s objectives beyond the short term.

"The overall U.S. economy will, of course, benefit from higher energy prices as it is a net exporter," continued Crypto is Macro Now. "Moreover, military spending will increase to replenish equipment, providing additional economic stimulus. Both areas should help prevent a sharp decline in GDP."

Bitcoin Shows Strength, Yet the Story is More Complex

Bitcoin continues to trade within the $65,000-$70,000 range, currently valued at BTC$66,487.04, and has—on paper—outperformed since the onset of the Iran conflict.

In comparison, gold has decreased by around 20% since the commencement of U.S. military actions, while the Nasdaq index entered correction territory on Friday, dropping over 10% from its 2026 peaks.

However, it is important to consider the context. At the beginning of March, gold was experiencing a historic upward trend, having more than doubled in price over the previous year. The Nasdaq was also nearing a record high, up 50% from its lows in April 2025. Conversely, Bitcoin was approximately 50% down from its record peak in early October 2025.

When viewed over any significant period, Bitcoin continues to substantially lag behind major assets such as stocks and gold.