As both energy prices and inflation fears pop, expectations for Federal Reserve interest rate cuts are sliding. Traders in recent days have abandoned hopes of an early summer easing from the central bank, a change in thinking that coincided with the U.S.-Israel attacks on Iran and a burst in oil prices to around $100 a barrel. Prior to the conflict, the market anticipation had been for a quarter percentage point rate reduction in June, likely another one in September, and on outside chance of even three depending on how the economics played out, according to the CME Group’s FedWatch calculations. Much of the thinking behind that approach was that a softening labor market, moderating inflation and a new dovish chair coming on board in May would push the Fed into an easing posture. But at least as long as the Iran drama plays out the expectations now is that fighting inflation will remain paramount.
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