Fed rate markets are repricing toward prolonged tightness, with the March 2027 meeting showing odds climbing for rates above 2.25% (from 63¢ to 76¢). The shift comes as markets are priced for steady policy as policymakers wrestle with economic impacts from the war in Iran and spiking crude oil prices.

The Fed's latest projections show PCE inflation climbing to 2.2% for 2027 from prior 2.1%, while Chicago Fed President Goolsbee said rate cuts may need to wait until 2027 if oil prices stay elevated, pushing cuts out of 2026. Markets are abandoning hopes for aggressive easing, instead pricing in a scenario where the Fed holds rates steady at 3.5-3.75% before hiking by 25bp in Q3 2027. The implications are clear: sustained Middle East conflict could force the Fed to tighten rather than ease.