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Home/Markets & Investing/FED INTEREST RATE DECISION

Oil supply shocks are pricing out Federal Reserve rate cuts

JL

Jordan Livingston

Fed interest rate decision · Apr 13, 2026

Oil supply shocks are pricing out Federal Reserve rate cuts

Source: DojiDoji Data Terminal

Investors are pricing a more than 97% chance that the base interest rate stays between 3.5% and 3.75% at the April 28 meeting. The lack of movement stems from inflation rising 3.3% over the past 12 months, a figure moving in the opposite direction of the Federal Reserve's 2% target.

Related Brief1d ago
monetary policy

Energy Shocks Push Inflation to 3.3% and Delay Federal Reserve Rate Cuts

Traders have pushed out the timeline for the first interest rate cut and reduced the total number of cuts anticipated for 2026. This repricing follows a March 2026 Consumer Price Index report showing headline inflation at 3.3%, the highest level since early 2024. The surge was driven by gasoline and electricity costs following disruptions to oil supplies through the Strait of Hormuz, a waterway carrying about one-fifth of global oil and gas supply, caused by the conflict between the United States and Iran. Crude oil prices rose nearly 50% to over the $98 a barrel mark. Gasoline prices averaged $4.15 per gallon, and overall energy prices jumped almost 12% in one month. Airline fares rose 3.4% from February to March. Businesses increased production and transportation expenses, passing these costs to consumers through higher prices. Core CPI rose to 2.6% year-over-year in March 2026. Because core measures are showing momentum, the Federal Reserve cannot dismiss the inflation spike as a temporary energy anomaly. The Federal Reserve currently maintains a benchmark rate between 3.5% and 3.5% and 3.75%. While Chairman Jerome Powell stated policy is "in a good place" to wait and see, the central bank may hesitate to cut borrowing costs. Traders now anticipate fewer total cuts for 2026.

This inflationary pressure is driven by oil prices. Iran has littered the Strait of Hormuz with mines, causing ship captains to avoid the waterway. This has choked off the supply of approximately 20 million barrels of oil per day, or 20% of global supply, that typically flows from the UAE, Qatar, Kuwait, and Iraq.

Related BriefJust now
monetary policy

Oil price surges will not trigger Federal Reserve rate hikes

The Federal Reserve will likely implement single rate cuts in the second half of the year. This follows a surge in oil prices after the failure of US-Iran negotiations, which saw WTI crude oil reach $105.339 per barrel and Brent crude oil reach $103.472 per barrel. Market expectations for rate hikes have resurfaced, but the transmission of oil prices to the Consumer Price Index (CPI) is not immediate. Oil prices influence the CPI primarily through energy and transportation sectors that account for less than 13% of the CPI. Transmission to other items requires two to three months or two quarters. Short-term inflation will not spiral out of control, meaning the Federal Reserve does not face urgency to raise interest rates. The Federal Reserve will implement one to two rate cuts this year.

With no concrete end in sight for oil supply normalization, traders have written off the rate cuts requested by President Trump and Treasury Secretary Scott Bessent. The remaining 2.6% of traders are pricing in a hike of 25 basis points.

Related Brief21h ago
inflation

Higher oil prices from Strait of Hormuz closure push inflation to 3.56%, threatening tech valuations

Monthly inflation has risen from 2.4% in February to 3.56% in April, driven by a sharp increase in crude oil prices after Iran closed the Strait of Hormuz in response to U.S. and Israeli military actions. The closure disrupted global oil exports, triggering one of the largest energy supply shocks in modern history. Higher transportation and production costs have rippled through the economy, and inflation is now projected to exceed 4% according to the Cleveland Fed. That outlook has upended expectations for Federal Reserve rate cuts. The stock market entered 2026 with its second-highest valuation in 155 years, priced on the assumption of continued monetary easing. With the Federal Open Market Committee now unlikely to lower interest rates, sectors dependent on cheap capital—especially artificial intelligence and technology—face mounting valuation pressure.

Fed interest rate decision

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