I noticed that a major change has occurred in the market over the past week. Expectations regarding Federal Reserve actions suddenly shifted from the possibility of multiple rate cuts to rate hikes. This is not just a simple change—it's a reflection of ongoing inflation concerns that continue to worry investors and policymakers.

The reason? Primarily energy concerns. Since tensions in the Middle East escalated last month, Brent crude prices have risen sharply from around $70 per barrel to now reaching $111. This significant jump has a direct impact on inflation expectations. Just look at the data from CME FedWatch—there is now nearly a 30% probability that the Fed will raise the federal funds rate by the end of the year, while the chances of rate cuts have dropped to just 2.9%. Compared to a few weeks ago when markets expected multiple cuts, this is a 180-degree turn.

Core inflation remains high. In February, it reached 2.5% year-over-year and has not fallen back to the Fed’s 2% target since 2021. Even more alarming are long-term inflation expectations—the 5-year and 10-year measures are at 2.5% and 2.3%, respectively. This means markets expect inflation to decline but not immediately or to the Fed’s target. This is serious because it indicates that inflation risks remain embedded in the system.

Treasury yields have also risen accordingly. The 10-year yield has reached 4.40% from below 4% just last week. Gold, even as a traditionally safe-haven asset, has dropped significantly—down about 20% since tensions began. The Nasdaq has entered correction territory, down more than 10% from its recent highs.

Bitcoin has been relatively resilient compared to others. It remains in the $65,000–$70,000 range, with the current price reaching $72,784. But looking at the bigger picture, Bitcoin actually underperformed compared to stocks and gold in the long term. It has fallen about 50% from early October 2025 levels, while the Nasdaq has risen 50% from its April 2025 lows, and gold has doubled year-over-year.

There’s also an interesting development—Bhutan quietly sold around 70% of its Bitcoin holdings in October 2024, reducing its remaining reserves to 3,954 BTC worth approximately $280.6 million. Their hydropower-backed mining operations seem to have slowed down or stopped altogether.

So what exactly happened here? The fundamental shift in market expectations is driven by real inflation concerns, especially from energy markets. Geopolitical tensions have created supply uncertainties that pushed prices higher. While the US economy could benefit in the long run from higher energy prices as a net exporter, and increased military spending might provide stimulus, the immediate effect is higher inflation and changed Fed expectations. This is why markets are repricing rates and why risk assets are struggling. It’s worth monitoring how the Middle East situation resolves—if tensions ease quickly, inflation fears might cool down too. But if it drags on, expect sustained pressure on the markets.