Daily Recap: March 25, 2026
Markets traded under a single dominant force: geopolitics. The escalating Middle East conflict — centered on Iran and critical oil transit routes — continues to drive a sharp repricing across energy, rates, and FX.
Crude remains the transmission channel. After briefly spiking above $110 earlier in the week, oil is still holding near the mid-$90s — up roughly 30–40% from pre-conflict levels — as supply disruption risks remain elevated. The closure threat around the Strait of Hormuz, which handles a significant share of global oil flows, has kept risk premia embedded in energy markets and gasoline prices rising domestically.
Rates are reacting accordingly. Treasury yields are drifting higher again as markets reprice inflation risk tied directly to energy. The recent disinflation narrative has stalled, with oil-driven price pressure reversing the prior rally in rate-cut expectations. The bond market is now signaling a higher-for-longer regime — not because growth is strong, but because inflation risks are being reintroduced via supply shock.
The Federal Reserve is back in a policy bind. Inflation expectations remain relatively anchored near ~3%, suggesting markets still view this as a supply shock — not a full inflation spiral. But if energy prices persist at elevated levels, headline inflation is likely to reaccelerate into Q2, delaying any easing cycle.
FX markets reflect the shift: the dollar is firming again as a geopolitical hedge, while risk assets are increasingly sensitive to every headline out of Washington and the Middle East.
What Mattered Most
Oil as policy driver: Crude holding near ~$95 after geopolitical spike; still far above pre-war levels
Strait of Hormuz risk: Supply chokepoint fears sustaining global energy premium
Rates repricing: Oil-driven inflation reversing rate-cut expectations
Fed uncertainty: Policy path clouded as inflation risks re-emerge
Inflation outlook: Headline CPI likely to rise again if energy stays elevated
Dollar strength: Safe-haven demand returns amid geopolitical stress
Policy & Profits Take
This is no longer a macro cycle story — it’s a policy regime shift.
The market had priced a clean disinflation path and a cooperative Fed. That narrative is now broken. Oil has reinserted itself as the dominant macro variable, and it’s being driven not by demand, but by Washington and geopolitics.
The key shift: the Fed doesn’t control this inflation.
If crude stays elevated, the Fed is effectively sidelined — unable to cut without risking credibility, and unable to hike without tightening into a geopolitical shock. That’s the definition of policy paralysis.
Markets are now trading on a new hierarchy:
Middle East headlines
Energy prices
Fed reaction function
Everything else is secondary.
Politics moves money — and right now, it’s moving oil, inflation, and the entire rate path.