At the beginning of this year, sentiment in global financial markets was relatively positive.
Although the Federal Reserve itself remained cautious at its final meeting late last year, suggesting only a symbolic rate cut for the year, Wall Street clearly has its own assessment system. Major institutions such as Goldman Sachs, Morgan Stanley, and Bank of America almost unanimously offered a more “aggressive” forecast: at least two rate cuts. Citigroup and some Chinese brokerages are even more bullish, betting on three cuts.
Analysts' consensus, in addition to economic data, also cites political factors: the U.S. midterm elections in November.
For policymakers, votes are life, and to win votes, they must stimulate the economy. Interest rates are the most direct thermostat for this, but monetary policy takes time to take effect. Counting the days, if the Trump administration wants to see results by November, the Federal Reserve must complete significant rate cuts before October.
At the time, major institutions predicted rate cuts would occur in the first half of the year: Goldman Sachs anticipated cuts in March and June, while Nomura Securities focused on June and September.
At the beginning of this year, the most likely number of rate cuts in 2026 predicted on Polymarket was 2.
Everyone feels that a downpour of liquidity is just around the corner.
Traders begin betting on rate hikes
However, Trump has never been one to follow conventional logic, launching a war in mid-March.
In mid-March, tensions in the Middle East escalated sharply. The heightened instability in the Strait of Hormuz quickly spread to energy markets, causing oil prices to surge nearly 50% within two weeks, with some grades briefly reaching $100. This spike in energy prices directly constrained the Federal Reserve’s room to cut interest rates.
February's CPI data already showed inflation above the 2% target, and with oil prices adding fuel to the fire, the Fed has no choice but to take a harder stance.
The expectation of a "100% rate cut" has already weakened, and there are even rare discussions about a return to rate hikes.
Everyone initially thought today’s interest rate meeting would be the starting gun for a rate cut, but the sentiment has now shifted to an “hawkish pause.” According to the latest data, the market is almost 100% certain that the Fed will hold rates steady this time.
What’s even more unsettling is that CME’s observation tool shows a 1.1% probability of an interest rate hike being priced in. Although this percentage is small, it sends a warning signal: the inflation monster may have returned.
The analysts' stance has also shifted accordingly.
Goldman Sachs' chief economist, Jan Hatzius, revised the forecast on March 12, pushing back the expected rate cut from June to September and projecting only two rate cuts this year.
JPMorgan Chase has been even more direct: current interest rates may not be sufficient to curb the economy, and if inflation continues to rebound, the Fed’s next move could very well be a rate hike: the claim that "rates are restrictive" is becoming increasingly hard to sustain, and if the labor market does not weaken, the Fed will maintain high rates for an extended period.
More aggressive views come from strategists at EY-Parthenon and Carson Group. EY-Parthenon analyst Gregory Daco believes there may be no rate cuts at all this year. Meanwhile, Carson Group analyst Sonu Varghese explicitly stated that, due to oil price surges triggered by the Iran conflict, the Fed may not only hold off on rate cuts but could even discuss rate hikes later this year.
Recent forward-looking analyses from Caixin and Wall Street Journal also indicate that, due to rising expectations for the terminal rate, the 2-year U.S. Treasury yield has surpassed 3.75%, a level typically signaling market anticipation of policy tightening. As a result, some traders now believe the probability of an interest rate hike before year-end has increased from 0% to around 35%.
At 2:00 AM China Time on Thursday night, the Federal Reserve will announce its final interest rate decision—whether to raise, cut, or hold rates steady.
At 2:30 PM, Powell will hold a press conference to speak on monetary policy, the inflation trajectory, and the economic outlook.
It is worth noting that the Federal Reserve is currently in a delicate political window: Powell’s term ends on May 15. This is his second-to-last press conference as Fed Chair, and the market is now in a state of waiting for a policy vacuum. Meanwhile, he is under significant political pressure, as Trump has repeatedly criticized Powell publicly and called for an emergency meeting to implement substantial rate cuts. This conflict between external political pressure and the internal logic of combating inflation has increased policy uncertainty.
In addition to the Federal Reserve, global central banks are also expected to have similar expectations.
This week, 21 central banks, covering two-thirds of the global economy, will announce their latest interest rate decisions. As this is the first "super central bank week" since the outbreak of conflict in the Middle East, global markets are closely watching whether central bank decisions will be influenced by developments in the Middle East.
The Reserve Bank of Australia just raised interest rates by another 0.25 percentage points yesterday, making it the first of eight major central banks this week to announce a rate decision—and the first among developed economies this year to tighten monetary policy.
In addition, the European Central Bank (ECB) is expected to hold rates steady at its meeting on March 19, with policymakers warning that global trade policies and geopolitical risks are constraining the outlook for future rate cuts. The Bank of England (BoE) is also expected to maintain rates unchanged this Thursday, despite some internal voices advocating for a cut, with stability remaining the prevailing stance.
How much longer will oil prices continue to rise?
If you carefully unpack all the variables, you’ll find a core factor that is nearly impossible to avoid: oil prices.
If oil prices continue to rise without limit, the room for interest rate cuts will be constrained; only when oil prices fall will monetary policy gain flexibility.
Therefore, the question becomes more direct: How much longer will oil prices rise?
Based on recent information released by the U.S. government, the outlook appears less pessimistic than the market had imagined.
On March 8, U.S. Energy Secretary Chris Wright provided a precise timeline in an interview, stating that the current surge in oil prices is merely a temporary fear premium and that the situation will improve within weeks at most—not months—even under the worst-case scenario.
This echoes the statement made a few days ago by White House Press Secretary Karoline Leavitt that "oil price increases will only last another two to three weeks."
Coincidentally, Trump’s remarks on March 10 were even more explicit. He said actions against Iran were progressing much faster than expected, even stating outright: “I think this war is very close to being over.” On the same day, the Energy Secretary’s social media account was embroiled in a “post-deletion controversy.”
Most intriguing is the adjustment in diplomatic timing.
Trump originally planned to visit China in early April but suddenly announced a one-month delay. The official excuse was being "too busy with the war" and needing to "remain in Washington for the war." However, if this one-month delay is considered alongside the Energy Secretary’s statement of a "2-3 week recovery period," the postponement—roughly 4 to 5 weeks—exactly encompasses the Energy Secretary’s "2-3 week recovery period" plus the initial post-war handling time.
Therefore, we boldly speculate that the Trump administration’s playbook might be: to largely conclude large-scale military operations by the end of March; within the following 2-3 weeks,配合 the release of the Strategic Petroleum Reserve to forcibly drive oil prices back below $80; and by the time of his visit in May, with the Middle East situation settled and inflationary pressures eliminated, he could approach the situation as a "victor," demanding significant interest rate cuts from the Federal Reserve while gaining absolute leverage in U.S.-China trade negotiations.
The optimism at the beginning of the year was based on the assumptions of "controllable inflation and preemptive policy measures"; however, the sudden shift in the Middle East situation has shaken the most critical pillar of this assumption—energy prices.
When oil prices lose their anchor, inflation loses its anchor; when inflation loses its anchor, the path of interest rates naturally becomes unclear.
In the time ahead, the determination of global asset prices will depend on distant places, ongoing oil tanker routes, and artillery fire that has yet to fully subside.