Bond traders scaled back bets on a Federal Reserve rate cut this year after March CPI data showed inflation accelerated to 0.9%, driven by surging gasoline prices linked to the Iran conflict. Interest-rate swaps now price a 1-in-3 chance of a quarter-point cut, unchanged from pre-data levels. Treasuries dipped, with yields rising 2-3 basis points across maturities. Core CPI, excluding food and energy, rose 0.2%, signaling persistent underlying inflation.

Bond traders’ reduced optimism reflects growing concerns that elevated energy costs and geopolitical tensions could delay Fed easing. Tom di Galoma, Mischler Financial Group’s managing director, warned the data “will not support bond prices” as next month’s report may worsen inflationary pressures. The Fed’s March meeting minutes revealed officials’ heightened anxiety about the war’s impact on prices, with some members noting the conflict’s role in pushing inflation above the 2% target. These developments underscore the Fed’s dilemma: balancing inflation control with economic stability amid volatile energy markets. Investors now face uncertainty over whether the central bank will prioritize rate cuts or maintain hawkish policy to curb rising costs.