Futures markets have priced in a Federal Reserve rate hike by year-end for the first time since 2023, with odds surpassing 50%. This shift is driven by Brent crude oil prices topping $112 due to tensions in the Strait of Hormuz and the OECD raising its G20 inflation forecast to 4%, up from 2.8% in December, largely because of the Iran war. The rising inflation and energy costs create a stagflation risk, complicating the Fed's policy decisions between raising rates to curb inflation or cutting them to support a slowing economy. Market impacts include pressure on growth stocks and long-duration bonds, while energy and cash-flow strong companies may benefit. Investors should watch the April 6 Iran deadline, which could push oil prices higher and make rate hikes more likely.
