Bond Traders Are Backing away from Fed Cuts as Oil and War Keep the Pressure on

Bloomberg, the New York Times, and the Washington Post contributed to this report.

Bond traders are basically shrugging off the idea of a neat, easy Fed easing cycle this year. With the Middle East war driving oil higher and inflation data still running hot, even one interest-rate cut looks more like a coin flip than a plan. The Fed, for its part, just held rates steady again and lifted its inflation outlook, reinforcing the message that policymakers are in no hurry to blink.

That’s the mood shift in a nutshell: oil prices have jumped sharply since the war with Iran escalated, wholesale inflation has come in hotter than expected, and the Fed is now staring at a messier mix of sticky prices and softer growth. Traders had already been trimming their bets on cuts; now the market is leaning even more hawkish, with some still expecting only one cut late this year, if that.

Jerome Powell is also getting squeezed from the political side. A Washington Post report says he has made clear he plans to stay on at the Fed beyond the end of his chair term in May if a successor is not confirmed, and Reuters reported that he will remain until the Justice Department probe into him is fully resolved. That keeps the leadership fight alive and makes the Fed drama even messier for markets to handicap.

For bond investors, the takeaway is simple: the old “Fed cuts are coming” story has been weakened by war, oil, and inflation that was already sticky before the latest shock. Unless energy prices cool and the economy softens more clearly, the market is likely to keep drifting toward fewer cuts, not more.