Fed's Great 180: Markets Go From Rate Cut Party to Hike Hangover as Oil Crashes the Dance

Remember when rate cuts were a sure thing? Pepperidge Farm remembers — but markets apparently forgot in a hurry. It's giving serious memory of a goldfish with ADHD out here. One minute traders were practically doing victory laps around the prospect of cheaper borrowing costs, the next they're nervously refreshing FedWatch like it's a dating app after a bad breakup.

Just weeks ago, traders were practically pricing in multiple Fed rate cuts for 2026. Now? They're seriously pricing in rate hikes. The CME FedWatch Tool shows nearly a 30% chance the fed funds rate ends the year higher than its current 3.50%-3.75% range. Meanwhile, the odds of rates going lower have crashed to a whopping 2.9%. That's not a typo. For those keeping score at home, that's a probability roughly equivalent to your degenerate uncle successfully timing a bottom.

What changed? Oil happened. Since tensions in the Middle East escalated at the end of February, Brent crude has jumped from about $70 per barrel to $111. That energy spike has sent long-dated Treasury yields soaring — the 10-year yield now sits at 4.40% after dipping below 4% just weeks ago. Nothing says "soft landing" quite like watching your energy costs moon while the Fed contemplates ruining everyone's party.

"Food and energy prices are tragically going to climb and remain high for a while, at least until the utter mess of Middle East shipping is sorted out," noted Crypto is Macro Now Newsletter. Even a hypothetical peace deal tomorrow would take months to untangle the mess. So yeah, buckle up buttercups — this isn't a "buy the dip" situation, it's a "buy groceries" situation.

Inflation wasn't playing nice even before oil went vertical. Core inflation ran at 2.5% year-over-year in February and hasn't touched the Fed's 2% target since April 2021. Longer-term expectations aren't any prettier — 5-year measures sit at 2.5% and 10-year at 2.3%. The Fed's 2% target is starting to feel like that friend who "definitely definitely definitely" promises to pay you back.

Bitcoin's moment? Sort of.

Bitcoin has been holding in the $65,000-$70,000 zone, which on paper makes it an outperformer since the Iran war escalation began. Gold is down roughly 20%. The Nasdaq entered correction territory, down 10%+ from its 2026 highs. Look, we're not saying Bitcoin is winning — we're just saying it's the tallest dwarf in a very short room right now.

But let's keep some perspective. Before this recent stretch, gold was on a historic run — more than doubling over the