Bank of America Says Federal Reserve May Hike Interest Rates Following Iran Oil Shock

TLDR

• Bank of America has cautioned that a Federal Reserve rate increase could occur if the Iran conflict pushes oil prices beyond $80 per barrel
• Markets currently assign a 25% probability of a rate hike by December, a jump from almost no chance just five days prior
• Federal Reserve Chair Powell stated that rate cuts are improbable unless there’s clear progress on curbing inflation
• Bitcoin is having difficulty maintaining a value above $70,000 amid mounting market pressure
• Fed Governor Chris Waller—who is widely regarded as a dovish policymaker—voted to keep rates unchanged because of growing inflation risks

(SeaPRwire) –   The Federal Reserve’s upcoming action is no longer certain. A week ago, markets were anticipating rate cuts, but now the prospect of a rate hike is being considered seriously for the first time in several years.

You can’t make this up:

The market now sees a 50% chance of a US Fed rate HIKE by the end of 2026.

Just months ago, markets saw as many as four rate CUTS this year.

As oil prices surge to $100+/barrel, inflation expectations are rapidly rising, with gas prices up nearly +50%…

— The Kobeissi Letter (@KobeissiLetter) March 20, 2026

This shift is driven by the U.S.-Iran conflict that started on February 28, which is pushing oil prices up and fueling inflation concerns. Bank of America identified three factors that might prompt the Fed to raise rates: a stable labor market, Jerome Powell remaining as Fed Chair longer than anticipated, and a prolonged oil price shock resulting from the conflict.

The bank noted that the risk increases if oil prices stay above $80, a level the commodity has been hovering around in recent weeks.

What Powell Said

Speaking at this week’s FOMC press conference, Fed Chair Jerome Powell stated that the Fed won’t cut rates unless there’s clear progress on inflation. He didn’t go so far as to say a rate hike is imminent, pointing out that it’s not the baseline scenario for most policymakers.

Powell also confirmed he may remain in his position until his intended successor, Kevin Warsh, is approved by the Senate—a process that could take some time. If Powell is still Chair at the June FOMC meeting and the Iran conflict continues to push oil prices upward, the pressure to raise rates could grow stronger.

Five days ago, markets had no expectation of a rate hike whatsoever. As of Friday, CME FedWatch Tool data for interest rate futures indicates roughly a 25% chance of a hike by December— a significant shift in a brief period.

Polymarket data reveals a 35% probability that the Fed will implement no rate cuts this year. The likelihood of a full rate hike has climbed to 19%, up from 8% when the conflict initially began.

How Crypto Is Reacting

Bitcoin is under pressure, struggling to maintain a value above $70,000 as inflation fears escalate and hopes for rate cuts diminish. On the same day, the total cryptocurrency market capitalization dropped from an intraday peak of $2.4 trillion to $2.37 trillion.

The crypto market experienced a short-lived relief rally but then resumed its downward trend as stocks also declined. Two-year Treasury yields surged to 3.89%, marking the widest gap above the Fed’s policy rate in three years— a sign that bond markets are anticipating tighter monetary policy in the future.

Polymarket data indicates that the probability of a U.S.-Iran ceasefire has dropped to 42%, suggesting traders expect the conflict to persist.

Fed Governor Chris Waller—who previously supported rate cuts following a weak February jobs report—changed his vote this week. He explained that growing inflation risks linked to the Iran conflict led him to vote for keeping rates steady instead. He added that it’s better to wait and observe how the situation unfolds before making any decisions about rate cuts.