For most of 2025, the market consensus was that the Federal Reserve would keep cutting rates. That consensus is now dead.

Goldman Sachs’ Phillip Lee has indicated that bond traders are pricing in roughly a 75% probability that the Fed will actually raise interest rates by the end of 2026. The catalyst: an inflation surge driven by the ongoing conflict in Iran, which has pushed Brent crude oil prices from the low $70s to near $100 per barrel.

How the math changed overnight

Market-implied probability of a rate hike in 2026 has jumped to approximately 45%, up from just 12% before the Iran conflict escalated. The federal funds rate currently sits between 3.5% and 3.75%. Goldman Sachs has revised its own forecast accordingly, pushing its anticipated rate cut timeline out to June and December of 2027. The bank now expects two 25 basis point cuts that would bring the terminal rate to a range of 3% to 3.25%.

Core inflation running around 3%, combined with strong economic indicators, has made the Fed’s job significantly harder.

Oil is the accelerant

The Iran conflict has become the single most important variable in the global inflation picture. Brent crude climbing from the low $70s toward $100 per barrel represents a roughly 40% increase, and that kind of move in energy prices ripples through everything.

Goldman’s decision to push rate cut expectations all the way out to mid-2027 reflects how seriously the bank takes the persistence of this inflationary pressure. Goldman Sachs has cautioned against overselling rate hike bets, suggesting that the inflation dynamics are heavily influenced by supply shocks rather than straightforward economic overheating.

What this means for crypto and risk assets

Bitcoin recently traded near $62,000 amid heightened risk-off sentiment tied to these macroeconomic factors. Higher interest rates, or even the expectation of them, create a gravitational pull away from speculative assets. When Treasury yields go up, the opportunity cost of holding non-yielding assets like Bitcoin increases.

During the 2022-2023 tightening cycle, Bitcoin fell from nearly $69,000 to below $16,000. The delay of any rate relief until 2027 means at least another 12 to 18 months of elevated borrowing costs. If the 75% probability figure from Goldman’s analysis proves accurate and the Fed does hike, traders who built their 2026 thesis around rate cuts may find themselves on the wrong side of a trade that moved faster than anyone expected.