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Markets Score 65 Cautious

Energy Volatility and Fed Outlook Weigh on Markets Amid Middle East Tensions

Mar 18, 2026 10:30 UTC
CL=F, ^VIX, US10Y
Short term

As Middle East tensions persist, Schroders' head of global economics David Rees warns that ongoing energy price uncertainty could influence Federal Reserve policy, with no expectation of rate cuts ahead of the central bank's upcoming decision.

  • David Rees, head of global economics at Schroders, comments on energy price uncertainty affecting Fed policy
  • No expectation of Fed rate cuts ahead of the upcoming interest rate decision
  • Jerome Powell is seen as having backed away from rate cutting signals
  • Energy markets remain volatile due to ongoing Middle East tensions
  • Indicators like CL=F and ^VIX are being closely watched for market sentiment
  • Financial and energy sectors are sensitive to the interplay between geopolitics and monetary policy

Persistent volatility in global energy markets, fueled by ongoing conflict in the Middle East, is shaping expectations around the Federal Reserve's monetary policy. David Rees, head of global economics at Schroders, emphasized that while a short-lived energy shock may be temporary, prolonged uncertainty could complicate the Fed's decision-making. He noted that Federal Reserve Chair Jerome Powell is unlikely to signal rate cuts in the near term, reflecting a more hawkish stance. This view aligns with broader market concerns about inflation persistence and the potential for sustained higher interest rates. With energy prices remaining under pressure, investors are adjusting asset allocations, particularly in energy and financial sectors. The absence of rate cuts could also influence bond markets, affecting benchmarks such as US10Y. The outlook remains sensitive to geopolitical developments, particularly those impacting oil supply and pricing. The market's reaction is being closely monitored through indicators like the VIX, which reflects equity market volatility, and CL=F, the crude oil futures contract, as traders assess risks across multiple asset classes. Despite no immediate rate change expected, the interplay between energy prices and monetary policy continues to be a key driver of financial conditions.

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