In recent weeks, the discourse surrounding interest rates in the U.S. has shifted dramatically. Initially, economists and traders were focused on the prospect of Federal Reserve rate cuts in 2026. However, as indicators suggest minimal economic slowdown, persistent inflation above the central bank’s target, and a notable 50% surge in oil prices due to escalating geopolitical tensions, conversations are now leaning towards a potential rate hike as early as April.
According to the CME FedWatch, the probability of the Fed tightening its policy during its upcoming April meeting has escalated to 12%. This marks a significant increase from a previous 0% expectation just a week ago and stands in stark contrast to sentiments expressed two months prior, when analysts widely anticipated a rate cut.
Recent data indicates that annual headline inflation is at 2.4%, with core inflation slightly higher at 2.5%. These figures reflect the economic landscape prior to the start of the Iran conflict, which has significantly impacted oil prices. The resulting instability has contributed to a considerable sell-off in the bond market, with the yield on the 10-year U.S. Treasury note rising to 4.38%, a noteworthy increase from below 4% earlier in March. This trend mirrors global movements, as the U.K. sees its 10-year gilt yields surpass 5%, marking the highest levels since 2008.
In the stock market, major indices have remained relatively stagnant since the onset of the conflict, but trends indicate a mounting decline. The S&P 500 fell another 0.9% recently, marking its fourth consecutive weekly drop, bringing its overall decline to over 5% since late February. The Nasdaq has followed a similar downward trajectory, experiencing a 1.2% dip on Friday.
Precious metals, which initially saw significant price increases following the war’s outbreak, are now experiencing a downturn. Gold, which was trading around $5,500 per ounce at the beginning of the month, has seen its value decrease to approximately $4,569. Silver has similarly faltered, plummeting from $95 to $69.50 per ounce.
In this climate, Bitcoin appears to be signaling potential recessionary pressures, according to Andre Dragosch, European Head of Research at Bitwise. He pointed out that Bitcoin is currently reflecting economic fears while other traditional assets have not yet adjusted accordingly. At around $70,000, Bitcoin has shown resilience, becoming one of the better-performing assets since the geopolitical turmoil began, and suggesting that it may be a leading indicator of broader economic trends.
