The Federal Reserve is nearly certain to hold its benchmark interest rate steady at 3.50%-3.75% at the April 29 FOMC meeting, with CME Fedwatch futures showing a 99.5% probability of no change. Just a month ago, on March 4, traders assigned an 88.2% chance of a hold, with nearly 12% still betting on a 25-basis-point cut. That window has firmly closed.
Oil Shock Reshapes Rate Expectations
The shift came after President Donald Trump's primetime national address in early April, where he vowed to strike Iran “with extreme hardness” in the coming weeks, threatened to bomb power plants, and downplayed U.S. dependence on Strait of Hormuz oil. Markets reacted instantly. WTI crude surged past $110–112 per barrel, and Brent traded above $107, levels not consistently seen since the 2022 Russia-Ukraine shock. Physical oil premiums in Houston rose to $5.50 above futures.
The Strait of Hormuz, through which about 20% of global oil supply transits daily, has seen Iranian navy actions nearly block tanker traffic since fighting escalated in late February 2026. The International Energy Agency coordinated emergency stockpile releases across more than 30 countries, which mitigated but did not eliminate shortages. These supply losses directly feed into the Fed's preferred inflation gauge. The March 18 Summary of Economic Projections revised 2026 PCE inflation up to 2.7%, from a 2.4% estimate in December. Core PCE stood at the same level.
The median dot-plot still projects one 25-basis-point cut this year, but Chair Jerome Powell made clear in the post-meeting press conference that officials need more time to assess whether second-order effects, wage-price spirals, and de-anchoring expectations will materialize. “The developments in the Middle East are highly uncertain,” Powell said, framing the oil shock alongside the pandemic and tariffs as supply disruptions.
Markets Price Out Cuts Completely
Prediction markets are more blunt. Polymarket currently assigns a 36% probability to zero rate cuts for all of 2026, up from 10% before the war began. A single 25-basis-point cut has a 23% chance. Kalshi puts the no-cut scenario at 38.5%, with $2.9 million in trading volume reflecting conviction from real-money investors. For the June 17 FOMC meeting, CME Fedwatch shows a 96.7% probability of another hold. On March 4, that figure was 66.8%, with 30.2% of traders still expecting a cut by June. That easing premium has all but evaporated.
Wall Street desks remain more optimistic than futures markets. Citigroup still forecasts over 75 basis points of cuts this year, but pushed back its timeline in February. This divergence is notable: professional forecasters are pricing a scenario where the conflict de-escalates and oil retreats; futures traders are pricing the world as it is today.
Powell's Lame-Duck Status and Internal Dissent
The FOMC was not unanimous at the March 17-18 meeting. Governor Stephen Miran cast the sole dissenting vote, favoring an immediate cut. The other 10 voting members held their position. Powell's term as Fed chair ends on May 15, 2026. Donald Trump has proposed Kevin Warsh as the next chair, though Powell's separate term as a Fed governor lasts until January 31, 2028. Historical precedent suggests outgoing chairs rarely maintain significant influence once seated as governors. With only one vote among seven governors, Powell lacks the authority to steer outcomes as he does as chair.
Meanwhile, U.S. consumers are absorbing the pain. The national average gasoline price is approaching or exceeding $4 per gallon across many states, up about $1 from pre-war levels. The average 30-year mortgage rate hovers around 6.38%. Borrowing costs across the economy remain elevated because the Fed has no room to ease without risking a second wave of inflation — one that may arrive regardless of policymakers' intent. The next FOMC decision is due April 29. Unless there is a dramatic reversal in oil prices or a credible ceasefire, the Fed is expected to do what markets have already priced: nothing.