The prospect of a hawkish pivot by the Federal Reserve has returned to the forefront of market sentiment, driven by geopolitical instability in the Middle East.
Reports indicate that US central bank officials are prepared to tighten monetary policy again later this year if the ongoing crisis between Iran and the United States triggers a sustained surge in oil prices, thereby feeding back into consumer inflation.
This development marks a significant shift in the policy outlook.
Just a week ago, market participants had priced in a high probability of rate cuts or a pause in tightening.
Now, the likelihood of multiple rate hikes in 2026 is rising sharply as traders recalibrate their models to account for the inflationary risk posed by potential supply disruptions in the energy sector.
Federal Reserve officials have previously signaled that further interest rate increases remain on the table if inflation proves stubbornly high.