Oil Shocks Lock In High Borrowing Costs Through 2026

Borrowing costs for consumers and businesses remain elevated. Interest-rate swaps now price in only a 25% chance of a quarter-point Federal Reserve rate cut by the end of 2026. The Federal Reserve has maintained its benchmark rate at 3.50%-3.75% as inflation remains above its 2% long-run target. Year-over-year PCE inflation held at 2.8% in February, with core inflation at 3.0%. The PCE price index rose 0.4% both overall and excluding food and energy prices. This inflationary pressure follows a surge in energy costs. Brent crude oil prices rebounded above $98 per barrel after surging over 60% in one month following military strikes by the U.S. and Israel against Iran. Gasoline prices exceeded $4 per gallon for the first time in over three years. These energy prices feed into broader food and transportation costs.