Mary Daly, President of the Federal Reserve Bank of San Francisco, said a rate cut could still happen if the Iran conflict ends quickly and oil prices fall. She said that if inflation stays high for longer than expected, the Fed would keep policy unchanged until it is clear inflation is moving down.<\/p>\n
Daly said inflation work was under way before the oil price shock, and higher oil prices may mean it takes longer. She put a lower chance on a rate rise than on a cut or holding rates steady.<\/p>\n
She said persistently high oil prices could lift inflation and also weaken growth. She noted people are already cutting back on travel because they are worried about higher costs.<\/p>\n
Daly said the Fed needs to return inflation to 2% while avoiding unnecessary damage to jobs. She described US economic fundamentals as solid and said the labour market is steadier, with risks to employment and inflation goals balanced.<\/p>\n
She said the Fed is watching the conflict and how firms pass on costs, with more surcharges seen than permanent price rises. She added policy is restrictive enough to push inflation down, while supporting a steady jobs market, and that a high CPI reading would not surprise markets.<\/p>\n
Given the new inflation data, we see the Federal Reserve holding steady for longer than anticipated. The latest Consumer Price Index reading for March 2026 came in at a stubborn 3.8%, well above the 2% target and complicating any immediate plans for policy easing. This means the path to a rate cut is now significantly longer.<\/p>\n
Renewed tensions in the Strait of Hormuz have pushed WTI crude oil prices to nearly $98 a barrel, a level not seen since the brief spike in late 2024. Persistently high oil prices would mean higher inflation but would also hurt growth, creating a difficult balancing act. A lower probability is placed on a rate hike than on a cut or holding steady.<\/p>\n
This environment suggests that options traders should prepare for sustained volatility in the coming weeks. The CBOE Volatility Index (VIX) has already climbed over 19, reflecting heightened uncertainty about the Fed’s next move and the geopolitical outlook. Strategies that benefit from price swings, rather than firm directional bets, may be prudent.<\/p>\n
The derivatives market is now reflecting this uncertainty, with Fed Funds futures pricing out any chance of a summer rate cut. The odds for a rate cut by December 2026 have dropped to just 40%, a sharp reversal from the two cuts that were priced in at the start of the year. This indicates a major shift in market sentiment over the last quarter.<\/p>\n
Looking back at the situation in 2025, we remember a period of optimism when it seemed the inflation battle was nearly won as the core PCE dropped below 3%. That work on inflation, which we thought was almost done, now clearly takes longer due to these recent price shocks. The US economic fundamentals remain solid, but this new challenge cannot be ignored.<\/p>\n
We are already seeing higher energy prices affect the economy, with airline stocks falling on fears of reduced travel and higher fuel costs. Traders should watch for companies implementing temporary surcharges, which can be a signal of margin pressure without committing to permanent price hikes. This is a key indicator of how businesses are passing along costs.<\/p>\n
The policy is likely restrictive enough to put downward pressure on inflation, but the timeline is the real question for the market. The real question is does the ceasefire in the region persist, and if it does the current CPI will be old news. An unexpected de-escalation could see a rapid repricing of rate cut expectations.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Daly said Fed may still cut rates if Iran conflict eases, oil falls; high inflation delays.<\/p>\n","protected":false},"author":38,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[46],"tags":[],"class_list":["post-44698","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":[],"aioseo_notices":[],"featured_image_src":null,"featured_image_src_square":null,"author_info":{"display_name":"josephine","author_link":"https:\/\/www.vtmarketsglobal.com\/en\/author\/josephine\/"},"_links":{"self":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts\/44698","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/users\/38"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/comments?post=44698"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts\/44698\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/media?parent=44698"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/categories?post=44698"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/tags?post=44698"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}