US-Iran conflict drives energy prices, fuels inflation concerns

## Market Snapshot

In the “Fed rate cut by June 2026 meeting” market, prices currently indicate a 2.6% likelihood of a rate cut by June, slightly up from 2% 24 hours ago. The “Fed rate cut by September 2026 meeting” market shows a 22.1% probability, compared to 18% the previous day.

## Key Takeaways

– Morgan Stanley’s expectation of higher CPI figures suggests persistent inflation, impacting the probability of a Fed rate cut. – Current market pricing reflects a decreased likelihood of a rate cut by June 2026, consistent with ongoing inflation concerns. – The geopolitical tensions between the US and Iran continue to drive energy prices up, contributing to inflationary pressures.

## Article Body

Morgan Stanley has projected that the upcoming Consumer Price Index (CPI) report will reveal elevated inflation figures, largely due to significant increases in energy prices. The US inflation rate for March 2026 rose to 3.3% year-over-year, up from 2.4% in February, primarily driven by a 12.5% surge in energy prices. This spike is attributed to the ongoing US-Iran conflict, which has disrupted global oil supplies and led to the largest monthly gasoline price jump since 1967. The anticipated CPI report for April 2026 suggests potential further escalation in inflation, as no ceasefire or diplomatic resolution has been reported in the conflict.

## Market Interpretation

The market interpretation of Morgan Stanley’s analysis and the geopolitical context appears to be supportive of a NO outcome for a Fed rate cut by June 2026. Persistent inflation, driven by energy price increases due to the US-Iran conflict, suggests that the Federal Reserve may be less inclined to reduce rates. The impact is considered high, with market participants seemingly adjusting their expectations in light of ongoing inflationary pressures and geopolitical uncertainty.

## What to Watch

Observers should monitor the release of the April CPI report and any statements from Federal Reserve officials, particularly Jerome Powell, regarding inflation and monetary policy. The ongoing US-Iran conflict and its effect on energy prices remain crucial factors. Additionally, any developments in diplomatic negotiations that could influence oil supply stability will be key indicators for future market movements.

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