- Oil prices surged 7.4% after Trump declared the Iran ceasefire over, reigniting inflation fears.
- Kalshi markets now show a rising probability that the Fed's next move will be a rate hike, not a cut.
- The geopolitical shock threatens to derail the central bank's easing plans as energy costs feed into broader price pressures.
Oil Prices Spike on Geopolitical Turmoil
Brent crude jumped more than 7% on Thursday after President Trump announced the end of the Iran ceasefire, according to people familiar with the matter. The sharp move higher—the biggest single-day gain in months—sent shockwaves through financial markets as traders recalibrated expectations for both inflation and monetary policy.
Fed Rate Cut Hopes Fade
The oil surge has upended the narrative of steadily cooling inflation that had underpinned bets on multiple rate cuts this year. On Kalshi, a popular prediction market, the implied probability that the Federal Reserve's next move will be a rate hike has climbed sharply. “Without a sustained retreat in energy prices, the Fed’s path to easing has hit a snag,” said one economist who asked not to be named discussing market pricing.
Broader Implications
Higher oil prices risk pushing up headline inflation and squeezing consumers and businesses alike. The White House declined to comment on the impact of the oil move, while the Treasury Department did not respond to a request for comment. Some analysts caution that the spike could be temporary if supply disruptions prove short-lived, but others warn that prolonged geopolitical tensions could force the Fed to prioritize price stability over growth.
Correction: An earlier version of this article misstated the timing of the oil price move. It occurred Thursday, not Wednesday.