US | Markets reassess the Fed’s policy path amid higher oil prices

Summary

For a second straight meeting, the Fed held rates steady last week at a 3.50-3.75% target range, flagging renewed inflation risks tied to the Middle East conflict—now priced in by markets through higher medium- and long-term yields.

Key points

• Key points:
• After hitting four-month lows in late February, Treasury yields across the curve surged in the past month to levels not seen since late July 2025 amid the new geopolitical development.
• Renewed uncertainty over the duration and fallout of the Iran conflict has fueled volatility in the bond market, pushing it above its historical average for the first time in nine months.
• While 5-year breakevens have edged higher alongside the recent rise in oil prices, the stability of the 5y5y forward measure suggests markets view this shock as temporary.
• The eye-catching market reassessment of the monetary policy path shows increasing conviction that the scope for easing even under a new Fed leadership is constrained.
• The modest upward revision to median short-term rate projections left forecasters’ views on the rate path outdated since most survey responses were likely collected before the war.

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