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Bond Traders Lose Faith in 2026 Fed Rate Cut on Oil, PPI
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March 18, 2026
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6:32Now PlayingSteve Laipply, Global Head of iShares Fixed Income at BlackRock, gives his outlook on the bond market ahead of the Fed's March rate decision.
Bond traders priced in lower odds of even a single Federal Reserve interest-rate cut this year as Middle East warfare put upward pressure on oil prices and a US inflation gauge rose more than expected.
Markets further downgraded the chances of a rate cut as oil benchmarks approached their highest closing levels since 2022, spurred by reports an Iranian field was impaired by the latest attacks on the region by the US and Israel. Oil prices contribute to US consumer inflation in the short term via retail gasoline, where the national average is up about 30% this month.
A report on US February producer prices showed increases bigger than economists estimated, information that may influence Fed policymakers whose quarterly projections in December anticipated a quarter-point rate cut this year.
“The sticky US inflation backdrop leaves the Fed with little room to look through the oil shock, tilting the balance toward less easing,” said Elias Haddad, global head of markets strategy Brown Brothers Harriman.
The US central bank’s rate-setting committee is set to conclude a two-day meeting at which it’s widely expected to leave its target range for the US overnight lending rate at 3.5%-3.75%. However they also will update their projections for the economy and monetary policy, and their policy statement slated to be released at 2 p.m. in Washington — followed by Fed Chair Jerome Powell’s comments beginning 30 minutes later — may alter the outlook even if the projections are unchanged.
Treasury yields rose, led by short-maturity tenors that are most sensitive to changes in the Fed’s policy rate. The two-year yield climbed four basis points to 3.73%, the highest level this week.
Short-term interest rate markets that as recently as late February priced in two quarter-point rate cuts in 2026 in the past week ceased to fully price in even one. On Wednesday, the target shifted further toward mid-2027.
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