Expectations regarding the U.S. Federal Reserve’s monetary policy have shifted significantly in recent weeks, with financial markets now reconsidering the likelihood of interest rate increases within the year. Just a short time ago, investors had forecasted multiple rate cuts for 2026. However, the possibility of a rate hike this year has climbed, as CME FedWatch data suggests close to a 30% chance that the benchmark interest rate could be higher at year-end than it is today, while the odds of a rate cut have slipped to just 3%.
Inflation and energy market volatility drive sentiment
Emerging concerns over inflation and renewed volatility in the energy markets are at the core of this dramatic shift in outlook. Tensions in the Middle East at the end of February triggered a sharp rise in Brent crude oil prices, which surged from $70 to $111 per barrel. This escalation reverberated through the U.S. bond markets, causing 10-year Treasury yields to rise from below 4% to around 4.40%. Globally, the prevailing expectation is that food and energy prices will remain elevated for a considerable period.
Food and energy prices are expected to stay high until shipping disruptions in the Middle East are resolved. Even if a peace agreement is reached today, its economic impact may take months to become apparent, Crypto is Macro Now noted in its newsletter.
Long before the latest spike in oil, U.S. inflation was already running above the Fed’s 2% target. In February, annual core inflation was reported at 2.5% and has not dropped below 2% since April 2021. Five- and ten-year inflation expectations have remained at 2.5% and 2.3%, respectively, indicating that markets expect inflation to persist above target levels in the foreseeable future.
Since the U.S. is a net energy exporter, it could benefit from higher energy prices. Increased military spending may further support the economy. Combined, these sectors make a steep decline in growth unlikely, the Crypto is Macro Now commentary further analyzed.
Bitcoin falls short of outperforming other assets in turbulent markets
Within the cryptocurrency markets, bitcoin has hovered between $65,000 and $70,000, attempting to maintain its footing. In the days following developments concerning Iran, bitcoin appeared to perform relatively better on paper compared to some other investment vehicles. Gold, for instance, has fallen roughly 20% since the onset of U.S. military actions, while the Nasdaq index entered correction territory last week after dropping over 10% from its 2026 peak.
However, looking further back reveals a more nuanced picture. At the start of March, gold prices had doubled over the previous year, and the Nasdaq had climbed nearly 50%, approaching new highs. By contrast, since its all-time high in October 2025, bitcoin has lost about half of its value.
Outside of short-term intervals, the data shows that bitcoin continues to trail behind equities and gold, underscoring its recent underperformance relative to other major asset classes.
