Iran War Gas Spike Undercuts Hopes for Fed Rate Cuts

An Associated Press report details how the Iran war’s run-up in gasoline prices has driven longer-term U.S. interest rates higher since Feb. 28, raising the cost of mortgages, auto loans and business borrowing and making Federal Reserve rate cuts this year increasingly unlikely. Futures tracked by CME FedWatch now imply no cuts in 2026 and put the odds of a Fed rate hike by October near 25%, up from zero a week earlier, as investors brace for energy-driven inflation to heat back up. Chicago Fed President Austan Goolsbee told the AP that if inflation rises while unemployment stays low and expectations drift higher, “rate increases have to be on the table,” while San Francisco Fed President Mary Daly cautioned there is “no single most-likely path” for policy because of war-related uncertainty. Economists quoted say the Fed faces a familiar but nasty bind: higher fuel costs mean more inflation pressure, but if gas hits something like $5 a gallon for long, it also chokes consumer spending and growth. The piece underscores how a conflict half a world away can quickly shift the trajectory of U.S. borrowing costs and the central bank’s fight against inflation, with households now facing a double hit of pricier fuel and more expensive credit.