The odds of a Fed hold firmed up in traders’ minds following Friday’s inflation data, which showed prices rose 3.3% over the past 12 months, with gas prices playing a major part in the increase.

This rise stems from the Iran conflict: Oil prices have increased because Iran borders the Strait of Hormuz, a narrow waterway in the Persian Gulf through which exports from the UAE, Qatar, Kuwait, and Iraq all flow. Some 20 million barrels of oil typically flowed through the strait every day, about 20% of global supply. Iran has made it clear it controls the strait and said it has littered the area with mines. Ship captains are too nervous to enter the waterway, choking off supply and sending prices spiraling.

Over the weekend, hopes that relations between Iran and the U.S. might improve were dashed: Vice President JD Vance said following peace talks, Iran had chosen “not to accept” the offered terms. Halting Iran from securing a nuclear weapon is reportedly a key sticking point in the negotiations.

The expectation of a permanent deal being reached sooner rather than later fell sharply on Polymarket overnight. Most traders still in the bet are of the opinion that a deal will be reached by June 30, though odds of an agreement at any point are falling across the board.

With no concrete end in sight for when oil supply might normalize, traders are settling into the idea that the Fed will be unlikely to move. After all, inflation is now moving in the opposite direction to the Fed’s mandated 2% target.

For the Fed to cut, adding more liquidity to the economy while prices are already elevated would be highly unusual—but might be justified if another element of the Fed’s mandate demanded it. Maintaining employment is another role of the Fed, and here there’s been some good news.

The U.S. Bureau of Labor Statistics reported earlier this month that nonfarm payroll employment increased in March, up 178,000, and the employment rate held steady at 4.3%.

This is another boon to the argument for a hold, as the labor market is showing potential for strengthening without any intervention on the base rate.

Early days

Despite that, sentiment and volatility is shifting fast at the moment—a hallmark of the second Trump administration. For all the conviction for a hold today, those bets could unwind tomorrow based on a nod from the White House or a speech from a central banker.

Some might argue that this Fed-watching actually undermines the job of the central bank, the third part of its mandate being “moderate long-term interest rates,” in order to ensure stability of expectations for monetary policy.

Rapidly cycling through outcomes sits at odds with the role of the Fed, according to famed economist and former Pimco CEO, Mohamed El-Erian, in December: “It’s crazy. This should not happen. The whole point of forward guidance is predictability and stability. So there is something wrong that has to be addressed.”

“The rest of the world looks at this and says, ‘Wait a minute, the Fed is at the core of the system, and there’s so much volatility in what they expect they’re going to do in a few weeks, what’s going on here?’”

UBS’s Paul Donovan also pointed out this morning that despite speeches from central bankers across the world this week, it’s still too early to glean true insight into the outcomes of interest-rate-setting meetings. He told clients: “There are assorted central bank speakers [this week] who have no insight into the course of the war. It is too soon to identify potential second-round effects in inflation or labor markets.”