The Federal Reserve is signaling that it may be forced to hike interest rates again unless Trump strikes a nuclear deal with Iran, and markets are now bracing for that outcome.

• The Fed's Michelle Bowman says inflation is being driven mainly by tariffs, oil prices tied to the Iran conflict, and AI spending — and a deal with Iran would be the easy way to cool it off.
• Markets now expect a rate hike in December, with more hikes possibly following in early 2027, after pricing in a string of bad news: Iran tensions, a stalled nuclear deal, and hot inflation data.
• Secretary of State Marco Rubio says the US won't strike a peace deal or restart the war with Iran — it will just do nothing, which keeps the pressure, and the economic pain, on both sides.
• Oil prices have actually fallen because Saudi Arabia is pumping more oil and Trump has lost urgency to resolve the standoff, but Iran is now threatening to target US officials and bases overseas.
• Hedge funds have sharply cut their bets on AI stocks and are deleveraging fast, but tech stocks still rallied hard, suggesting much of the bad news is already priced in.

Outlook: Expect a Fed rate hike in December with no Iran deal in sight, though markets may keep grinding higher if AI and oil fears stay contained.