Soaring Oil Prices Reignite Inflation Concerns, Global Central Bank Rate Cut Expectations Cool Across the Board

Odaily News Due to the Middle East conflict driving up oil prices and sparking inflation worries, money markets on Monday scaled back their bets on interest rate cuts by the US, UK, and Eurozone. According to swaps contracts linked to policy meeting dates, the probability of the Federal Reserve cutting rates three times by 2026 has dropped from nearly 50% last week to 20%. Traders no longer expect the Bank of England to implement three rate cuts this year and have lowered the probability of a March cut from over 80% to 60%. They have also halved their expectations for European Central Bank rate cuts this year, pricing in only 5 basis points of easing. The yields on the two-year US, UK, and German government bonds, which are most sensitive to monetary policy changes, rose more than their longer-term counterparts. This reflects a significant jump in inflation indicators, driven by Brent crude oil posting its largest gain in four years. Laura Cooper, Global Investment Strategist and Head of Macro Credit at Nuveen, stated: "A sustained rise in oil prices will have a significant premium effect on the global economy and the inflation path. A more persistent energy impulse could complicate the disinflation process and delay further rate cuts." (Jin10)