Interest rates
Rate-cut hopes fade as global tensions and inflation pressures rise
Jeff Milheiser
The U.S. economic outlook has shifted considerably in recent weeks, with a mix of geopolitical and economic factors virtually eliminating expectations for a Federal Reserve rate cut. Earlier expectations for two to three rate cuts in 2026 have now dropped to near zero.
Treasury yields have swung dramatically as investors react to fast-changing headlines and mixed messaging. The Iran conflict is driving most of the pricing action, sending 10-year yields from just under 4% to nearly 4.50% before settling around 4.40%. Daily moves of 10 basis points—once unusual—have become routine as concerns about the duration, intensity and cost of the conflict fuel uncertainty.
Rising oil prices tied to the conflict are adding pressure. Correspondingly, higher gas prices—a major household expense—have reignited inflation fears just as price growth had started to slow.
And inflation is back as a top-of-mind issue for the Fed. The interest-rate futures market has responded by all but pricing out any expectations of rate cuts for the rest of the year, given the renewed inflation threat and higher projected deficits linked to war-related spending.
Political dynamics have also influenced sentiment. The government shutdown affected the economy and consumer outlook, while delays in confirming the next Fed chair add another layer of unpredictability.
Taken together, these forces suggest that rate relief is unlikely in the near term, with markets bracing for continued volatility as global and domestic uncertainties collide.
Jeff Milheiser is vice president, funding and investments, in CoBank’s Treasury group. He graduated from Purdue University and has been with CoBank for more than 23 years.
