After Iran's ceasefire agreement was reached, the market increased bets on the Federal Reserve cutting interest rates within the year.

LootboxPhobia · 2026-04-08T13:17:06+00:00

After the United States and Iran reached a ceasefire agreement, investors' bets on the Federal Reserve cutting interest rates increased, with the probability rising from 14% to 43%. Market expectations for the Fed's policy shifted dramatically, and the anticipation of rate hikes has diminished. Although oil prices have retreated, they remain above pre-war levels, and inflation risks still exist. The likelihood of future rate cuts depends on economic indicators such as the unemployment rate.

LootboxPhobia

2026-04-08 13:17:06

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Investing.com - After the U.S. and Iran reached a two-week ceasefire agreement, investors increased their bets on a Fed rate cut.

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According to data from CME Group, the probability of at least one rate cut by December rose from 14% from the previous day to 43%.

Since the outbreak of the war, market expectations for Fed policy have shifted dramatically—from previously expecting multiple rate cuts to pricing in the possibility of potential rate hikes.

Rate-hike expectations have now completely faded, but investors have not yet returned to the pre-war outlook of multiple rate cuts. Uncertainty surrounding the ceasefire remains very high. If the Strait of Hormuz reopens, the backlog in clearing the global oil and natural gas markets could take months to unwind. Elevated energy prices could continue to keep pushing inflation higher over the coming months.

“For some time now, we have believed that if the unemployment rate rises to 4.5% or above, the Fed may consider cutting rates,” wrote Stephen Juneau, an economist at Bank of America (BofA), in a report to clients last week.

“The question is whether that level has already moved higher, given the inflation risks stemming from the Iran conflict. We still believe that an unemployment rate above 4.5% would make the Fed uneasy—especially considering that the February Job Openings and Labor Turnover Survey (JOLTS) report shows that both the job openings rate and the hiring rate have declined.”

The ceasefire was reached through diplomacy led by Pakistan, just a few hours before the deadline threatened by President Trump. This breathing room gave both sides time to reach a longer-term agreement to end the six-week war.

After the ceasefire announcement, oil prices fell to below $100 per barrel, but they are still above the pre-war level of about $70 per barrel. Gold prices rose, and futures climbed.

As bets on rate cuts increase, the market expects oil prices to fall further, helping avoid triggering a significant rise in inflation—so yields decline accordingly.

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