Affected by oil prices and PPI, bond traders have lost confidence in the Federal Reserve's interest rate cut outlook for 2026

As the Middle East conflict drives up oil prices and U.S. inflation indicators exceed expectations, bond traders are continuously lowering their expectations for even a single rate cut by the Federal Reserve this year. The U.S. Producer Price Index (PPI) for February, released on March 18, showed a rise that surpassed economists' expectations. This data could influence Federal Reserve policymakers, who had previously anticipated a 25 basis point rate cut this year in their quarterly forecast last December. "The persistently high U.S. inflation backdrop leaves the Federal Reserve with little room to 'ignore' the oil shock, tipping the balance towards reducing accommodative policies," said Elias Haddad, Global Market Strategist at Brown Brothers Harriman