Fed holds rates steady amid rising inflation, US-Iran tensions

The Federal Reserve has maintained interest rates at 3.5%–3.75%, and the probability of a “Cut–Pause–Pause” scenario by June has dropped to around 15% on the Fed rate cut market.

The decision to hold rates steady while inflation rises and the U.S.-Iran conflict continues has traders reevaluating positions in Fed decision markets. Unchanged rates in this environment point to a decreased likelihood of rate reductions in the near term.

Gold, a traditional safe haven during periods of geopolitical stress, is drawing more attention. The gold market shows odds rising modestly on gold hitting $8,000 by June. Stable interest rates paired with geopolitical uncertainty support that move.

The Fed’s current stance is a problem for traders banking on rate cuts. Rising inflation and geopolitical risks make a dovish turn unlikely. A YES share in the “Cut–Pause–Pause” market at current levels pays out if the Fed surprises with cuts, but at roughly 15% implied probability, the market is pricing that surprise as remote. Traders need to weigh whether the Fed will realistically shift course by June.

Watch for the upcoming FOMC meeting minutes and any developments in the U.S.-Iran conflict. Both could move market expectations quickly.

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