US stock futures drop as Middle East tensions shake rate-cut expectations
U.S. stock index futures fell on Monday as escalating tensions in the Middle East fueled concerns over energy infrastructure and sent oil prices soaring above $100 a barrel. The heightened conflict prompted investors to reassess expectations for Federal Reserve interest rate cuts, reducing optimism for monetary easing this year.
Iran’s Revolutionary Guards warned that the country would target Israel’s power plants and U.S. military facilities in the Gulf if President Donald Trump acted on his threat to “obliterate” Iran’s power network. This threat contributed to renewed fears of global inflation, adding pressure on central banks to maintain a cautious approach to monetary policy.
Investors now see a more than 50% chance of a rate hike in the second half of the year, contrasting with earlier bets on two rate cuts before the conflict intensified. The repricing followed a hawkish tone from the Federal Reserve in its recent meeting, projecting higher inflation and signaling only a single rate reduction in 2026.
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