WASHINGTON— The latest talk around U.S. interest rates has swung sharply in just days, with markets moving from expecting at least one Federal Reserve rate cut in 2026 to increasingly pricing in no cuts at all—and, in some corners, even debating whether the next move could be a hike if oil-driven inflation worsens.
The shift follows the Fed’s March meeting, where officials held rates steady at 3.50% to 3.75% and signaled only one quarter-point cut as the median 2026 expectation, while some policymakers projected no change and at least one official penciled in a hike for next year.
The change in tone has been driven largely by the inflation risk tied to the Middle East conflict and higher energy prices. San Francisco Fed President Mary Daly said Monday there is “no single most-likely path” for rates right now, warning that if the conflict drags on and oil stays elevated, the Fed could face the difficult combination of higher inflation and a weaker labor market. Chicago Fed President Austan Goolsbee likewise said inflation is now the greater near-term risk and that the central bank is watching whether higher gasoline prices start to affect broader inflation expectations, Reuters reported.
That has produced a rhetorical shift from earlier this year, when some officials were still openly talking about multiple cuts.
In February, Goolsbee said “several more” cuts could be possible in 2026 if inflation resumed a clear glide path back to 2%. Now, Goolsbee says he can envision circumstances where rate hikes might be needed, while still stressing that cuts could also return if the oil shock fades quickly and inflation cools again, Reuters noted.
Not everyone at the Fed is on the same page. Gov. Stephen Miran, the lone dissenter at the March meeting, continues to argue that rates should move lower, saying it is too early to judge the full economic impact of the oil shock and that labor-market weakness still justifies cuts over a 12-month horizon. But the broader market mood has clearly hardened: MarketWatch reported that investors have sharply reduced or eliminated bets on additional easing in 2026, with some analysts saying the Fed may now simply stay on hold longer than expected rather than deliver the cut still embedded in the official dot plot.