The Atlanta Federal Reserve Bank’s Market Probability Tracker now positions the odds of a rate hike as more likely than the odds of a rate cut within the next three months. The tracker—a tool that estimates the market-implied probabilities of various ranges for the three-month average Fed funds rate—reveals the probability of a rate cut within a three-month window has fallen from a high of about 60% in early February, down to about a 16% chance as of Tuesday. The probability of a rate hike, on the other hand, has risen steadily since the start of the month, up to about 15% from single digits, though down slightly from a high of about 25% last week.

The war in Iran and resulting global energy crisis has sent jitters throughout the economy. Inflation fears have gripped global markets, causing Treasury yields to jump Thursday as gold and silver prices plummet. Those fears have even caused some economic analysts and business leaders to invoke the dreaded S-word: stagflation. 

In a recent note, the president of sell-side consulting firm Yardeni Research hiked the probability of a stock market meltdown that includes 1970s-style stagflation to 35% this year, up from 20% (though Fed Chair Jerome Powell shut down those fears on Wednesday during a press conference, calling the word “a 1970s term”). Still, many economists view the conflict as a “nightmare scenario” as the war drives up energy and fertilizer prices, complicating inflation fighting mechanisms for institutions like the Fed. 

“A month ago, no one would have believed this,” Ryan Detrick, chief market strategist at financial services firm Carson Group, wrote in an X post on Tuesday. Detrick also spoke with CNBC about the odds of a rate hike. 

“The war and the spike in commodities across the board has pushed the rate hike percentages higher,” he said, adding inflation concerns were actually brewing before the Iran war even started in late February. “At the same time, we’ve been seeing inflation concerns even before the war started,” he said.

U.S. consumer prices rose 2.4% in February, a steady rate, though still stubbornly higher than where rates stood pre-pandemic. That value was calculated before the U.S. and Israel launched their first joint strikes on Iran, sending oil prices north of $100 a barrel.

A stable prediction—or downright ‘nuts’

There’s still no wide-spanning consensus on what the Fed will decide to do this year. Christopher Hodge, former New York Fed principal and chief U.S. economist at institutional brokerage firm Natixis CIB Americas,calls the possibility of a potential rake hike within the next three months “nuts.” 

“I feel like I’m taking crazy pills that the futures are not really agreeing with me,” Hodge told Fortune. The economist argues the market is misinterpreting how the Fed will react to the current energy shock. He’s still betting on two rate cuts this year, thinking the Fed will ultimately view rising gas prices as a tax on the consumer that will dampen consumer demand overall. This could, in turn, act as a shock to growth that could drive up unemployment, which would warrant additional rate cuts.

“The Fed has a history of looking through energy shocks,” Hodge said. “I don’t see how the Fed is going to view this as something that’s going to cause persistently higher inflation.”

Still, the odds of either a rate hike or a rate cut have declined, making it far more likely the Fed will hold rates steady over the next three months. Bettors on prediction markets Polymarket and Kalshi currently assign roughly an 85% probability the Fed will leave rates unchanged through June. At the same time, expectations for a rate hike have edged higher. Kalshi bettors now assign about a 20% probability to a hike occurring before the end of the year, with Polymarket showing a similar view, up more than 10 points from the beginning of the month.