Inflation worries and geopolitical tensions push markets to factor in Fed rate hikes.

Tensions in the Middle East are driving divergences across asset markets, as oil prices remain elevated while traditional safe havens struggle to hold value.

Market expectations for central bank policy have shifted dramatically in recent weeks. Just weeks ago, investors were pricing in multiple Federal Reserve rate cuts in 2026. Now, markets are seriously considering rate hikes. The CME FedWatch Tool currently shows nearly a 30% probability that the federal funds rate will end the year higher than the current 3.50%–3.75% range, while the odds of rate cuts have plunged to just 2.9%.

The shift is largely fueled by renewed inflation concerns linked to energy markets. Since late February, Brent crude has surged from roughly $70 per barrel to $111, pushing long-term Treasury yields higher—the 10-year yield has risen to 4.40% from below 4% in just weeks.

“Food and energy prices are set to remain high for some time, at least until Middle East shipping disruptions are resolved,” according to the Crypto is Macro Now newsletter. Core inflation was already above the Fed’s 2% target before oil’s spike, registering 2.5% year-over-year in February. Longer-term inflation expectations also remain above target, with 5-year and 10-year measures at 2.5% and 2.3%, respectively.

Despite these pressures, the U.S. economy could see offsetting benefits. Higher energy prices support net exports, and increased military spending is expected to add stimulus, helping GDP avoid a sharp contraction.

Bitcoin vs. traditional assets
Bitcoin has remained roughly in the $65,000–$70,000 range, appearing resilient since the escalation of the Iran conflict. On paper, this outperformance contrasts with gold, which has fallen about 20%, and the Nasdaq, which entered correction territory Friday after dropping more than 10% from its 2026 highs.

However, context matters. Gold had more than doubled over the past year, and the Nasdaq was up 50% from its April 2025 lows. Bitcoin, by contrast, remains down roughly 50% from its October 2025 peak. Over longer time frames, the cryptocurrency continues to underperform key assets like stocks and gold.