No more cuts

One of the most striking market shifts of the past weeks is happening in interest-rate expectations. Back in February, markets were still pricing close to three Fed rate cuts by mid-2027. Today, those cuts have almost entirely disappeared.

The reason is geopolitical. Higher oil prices linked to the Iran conflict are feeding directly into inflation expectations and forcing investors to rethink the idea of an imminent easing cycle. What looked like a disinflationary environment only a few months ago is now increasingly perceived as structurally inflationary.

This matters because markets are built around the assumption that central banks would eventually come to the rescue through lower rates. If energy-driven inflation persists, that safety net becomes much less certain. The consequence is a world where rates stay higher for longer while valuation multiples remain elevated, especially in the US.

For now, equity markets continue to be supported by strong earnings momentum and the AI investment cycle. But the margin for error is clearly narrowing.