Middle East tensions are creating notable divergences across financial markets, as oil prices surge while traditional safe-haven assets struggle.
Market expectations for Federal Reserve policy have shifted sharply. Just weeks ago, investors anticipated multiple rate cuts in 2026. Today, markets are increasingly pricing in rate hikes. The CME FedWatch Tool shows nearly a 30% probability that the federal funds rate will end the year above the current 3.50%–3.75% range, while the odds of a rate cut have collapsed to just 2.9%.
Energy markets are a key driver. Since late February, Brent crude has jumped from roughly $70 per barrel to $111, pushing long-term Treasury yields higher. The 10-year yield has risen to 4.40% from below 4% in recent weeks.
“Food and energy prices are likely to stay elevated for some time, at least until Middle East shipping disruptions are resolved,” said the Crypto is Macro Now newsletter. Core inflation was already above the Fed’s 2% target prior to the oil rally, with February printing 2.5% year-over-year. Longer-term inflation expectations remain elevated, with 5-year and 10-year measures at 2.5% and 2.3%, suggesting markets expect inflation to exceed the Fed’s mandate for years ahead.
Despite headwinds, the U.S. economy may benefit from higher energy prices as a net exporter, while increased military spending could provide additional stimulus, helping GDP avoid a sharp downturn.
Bitcoin’s relative performance
Bitcoin has remained largely in the $65,000–$70,000 range, appearing resilient since the Iran conflict escalated. On paper, this outperformance contrasts with gold, down roughly 20%, and the Nasdaq, which entered correction territory Friday after falling more than 10% from its 2026 highs.
Yet longer-term context matters. Gold had more than doubled over the past year, and the Nasdaq was up 50% from its April 2025 lows. Bitcoin, in comparison, remains about 50% below its October 2025 peak. Over extended periods, the cryptocurrency continues to lag major assets like stocks and gold.
