Two weeks ago, traders expected a Fed rate cut by June. Today, they’ve pushed that expectation all the way out to mid-2027 — and maybe even 2028. That’s not a subtle shift. That’s the market ripping up its playbook and starting over.
The catalyst? Oil prices blowing past $100 a barrel after the U.S.-Israel strikes on Iran sent energy markets into panic mode. Brent crude hasn’t been this disruptive since Russia invaded Ukraine. And with the Strait of Hormuz under threat, the supply shock isn’t hypothetical — it’s happening in real time.
Goldman Sachs officially pushed back its rate cut forecast from June to September, though the firm still thinks one cut could come before year-end. But futures traders aren’t buying even that. The CME FedWatch tool now shows just a single cut priced in for December 2026. After that? Nothing until deep into 2027.
The math is brutal. Core PCE inflation is expected to come in at 3.1% — moving further from the Fed’s 2% target, not closer. That was baked in before the Iran situation even started. Add $100 oil to an already-sticky inflation picture, and new Fed Chair Kevin Warsh (set to take over from Powell in May) inherits a policy straitjacket, not a blank check to ease.
Five-year breakeven inflation rates are climbing. SOFR spreads are narrowing. The bond market is quietly saying what equities haven’t fully processed yet: the era of rate cuts may not just be delayed — it may be over for this cycle.
For investors, this changes the calculus on everything from growth stocks to real estate. Companies that were priced on the assumption of cheap money returning need to be re-evaluated. The market spent the last two years front-running a dovish pivot that may never come. That mispricing is now unwinding, and the adjustment could get messy.
If oil stays elevated and inflation refuses to cooperate, the conversation might not be about when the Fed cuts — but whether it has to hike again. That’s not the base case yet. But the fact that it’s even on the table tells you everything about how fast the landscape has shifted.
