The Bank of Korea expects another rise in the Consumer Price Index this May, driven by surging global oil prices linked to the ongoing Middle East conflict. This outlook is pressuring the Federal Reserve, making a rate cut by June 2026 increasingly unlikely-market odds now sit at just 3.6%, down from 7% last week.
The conflict between Iran and the United States has pushed oil price surges beyond levels seen during the 2022 Russia-Ukraine war, creating acute challenges for oil-importing economies like South Korea. Although reports of a potential ceasefire have surfaced, underlying tensions remain unresolved-keeping energy markets volatile and imported inflation elevated.
The probability of a Fed rate cut by September 2026 has also dropped sharply, from 53% to 26.8% in just one week. The Federal Reserve's ability to ease monetary policy now hinges on inflation data and the trajectory of global oil prices. Markets are watching for any shift in language from Chair Jerome Powell, as well as updated forecasts from Goldman Sachs and the IMF.