On March 2, Iran closed the Strait of Hormuz. In twenty-nine days, it has done what three years of post-pandemic policy couldn't: force every single macro variable to reprice simultaneously. This isn't a shock — it's a regime change. And the market hasn't finished adjusting.
The Dashboard Before and After
The cleanest way to see what happened is to put every major macro variable side by side — where it stood on February 28 versus where it sits today.
| Variable | Feb 28 | Mar 30 | Change |
|---|---|---|---|
| Fed Funds Rate | 3.50–3.75% | 3.50–3.75% | Unchanged |
| Rate Cut Probability (Apr) | ~35% | 5.2% | -30pp |
| Rate Hike Probability (Jun) | ~0% | 3.8% | Hikes are back |
| US 10Y Yield | ~4.10% | 4.35% | +25bps |
| US 2Y Yield | ~3.38% | 3.82% | +44bps |
| 2s/10s Spread | +72bps | +53bps | Flattening |
| WTI Crude | ~$67 | $102.88 | +53% |
| Brent Crude | ~$73 | $112.78 | +55% |
| DXY | ~98 | 100.5 | +2.6% |
| Gold | ~$2,900 | $4,500+ | +55% |
| VIX | ~18 | 31.1 | +73% |
| HY Spread (OAS) | ~2.70% | 3.21% | +51bps |
| 5Y Breakeven Inflation | ~2.30% | 2.56% | +26bps |
| S&P 500 | ~5,950 | 6,344 | Resilient — so far |
Every row tells the same story: the easing cycle is dead, inflation risk is back, and the market is scrambling to reprice a world where the cheapest energy chokepoint on earth is closed.
The Cascade
A supply shock isn't a single event — it's a chain reaction. Here's how Hormuz propagates through the macro system:
The critical insight: the 2-year yield has moved more than the 10-year (+44bps vs +25bps). The front end is doing the heavy lifting because the market is repricing near-term Fed policy — not long-term growth expectations. The curve is flattening from the front, which means the bond market sees the Fed trapped: cut into an inflation shock, or hold and risk breaking something.
The Fed's Impossible Position
The March FOMC statement held rates at 3.50–3.75% with an 11-1 vote. The dot plot still shows one cut this year. But the market has moved far beyond the dots:
A month ago, the market was pricing two cuts. Now it's a coin flip between zero cuts and one cut — and hikes are re-entering the distribution for the first time since mid-2023. The 2-year flipped from pricing one full cut to pricing one full hike in three weeks. That's a 200bps swing in rate expectations.
What This Means for Sectors
A $100+ oil environment with a Fed on hold is not neutral. It creates clear winners and losers:
The April 6 Deadline
Trump has given Iran until April 6 to reopen the Strait. The three scenarios from here carry very different market implications:
Regime Assessment
We have moved from a late-cycle easing regime to a supply-shock hold regime. The easing cycle that began in September 2025 with three consecutive cuts is over until the energy shock resolves. Every thesis that depended on lower rates — growth equity multiples, housing recovery, EM carry — needs to be re-examined.
The market is not yet pricing the worst case. An S&P 500 at 6,344 with oil at $103 and a VIX at 31 suggests equities believe in resolution. High yield spreads at 321bps are widening but nowhere near distress levels. Either the market is right that this resolves in weeks, or there's significant further downside. The asymmetry favors caution.
Sources: Federal Reserve FOMC Statement, CME FedWatch, CNBC Oil Prices, FRED Breakeven Inflation, Trading Economics DXY