U.S. Federal Reserve Chair Jerome Powell reacts during a press conference following a two-day meeting of the Federal Open Market Committee (FOMC) on interest rate policy, in Washington, D.C., U.S., Jan. 28, 2026. Jonathan Ernst | ReutersAs 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 an 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 are that fighting inflation will remain paramount.”A higher inflation path will make it harder for the Fed to start cutting soon,” Goldman Sachs economists said in a Wednesday note. The firm officially adjusted its rate forecast pushing back the next cut to September from June. However, Goldman’s economists still think the Fed could lower once more before the end of 2026.”If the labor market weakens sooner and more substantially than we expect, we do not think that concern about the impact of higher oil prices on inflation and inflation expectations would be an obstacle to earlier rate cuts,” they wrote.An elusive second cutOther market players aren’t so sure.Traders in the fed funds futures market have taken even a September cut off the table and now see only one coming, in December, according to the CME gauge. There are no additional cuts priced in until well into 2027 or even into the early part of 2028, despite the presence of presumptive new Chair Kevin Warsh, picked by President Donald Trump ostensibly for a willingness to ease aggressively. Current Chair Jerome Powell leaves the position in May.Whether that outlook hold …
