Markets are bracing for a hawkish Fed today, and rising war fears with Iran plus a jump in oil prices are making the inflation picture worse, which is bad news for anyone hoping rate hikes are almost over.

• Canada just raised interest rates specifically to get ahead of rising oil-driven inflation, which hints at what the Fed may feel pressure to do as well.
• Oil prices are up sharply over the past month, and talk of a short, intense US-Israel military campaign against Iran is growing, with warnings for Gulf countries to prepare and even mentions from Trump of another major strike.
• Bond markets now expect more Fed rate hikes over the next year than they did just a day ago, and inflation expectations have risen instead of cooling like they did before the last Fed meeting.
• Strong cloud and AI business earnings are giving the Fed no excuse to ease up, since nothing in the economic data suggests financial conditions are too tight.
• Hopes for a near-term Iran deal are fading, with confidence in a quick resolution dropping from very high to much lower as deadlines keep slipping.

Outlook: Without an Iran deal soon, expect the Fed to keep hiking rates, which would weigh on stocks in the short term even though a later deal could spark a strong rally.