The escalating US-Iran conflict is sending shockwaves through global energy markets, directly threatening the Federal Reserve's ability to cut rates. Hostilities in the Middle East have knocked roughly 10 million barrels of oil per day offline, pushing Brent crude above $115 a barrel.
For the Federal Reserve, the risk is clear: a sustained energy shock reignites inflation. The probability of a rate cut by the June 2026 meeting has dropped to just 2.5%, a clear signal that markets now see the Fed prioritizing inflation control over monetary easing.
Federal Reserve Chair Jerome Powell and the FOMC face a difficult balancing act. The current supply disruption mirrors the 2022 Ukraine crisis but carries deeper regional risks. All eyes will be on upcoming CPI data and Powell's public remarks for the next policy signal.