US stock futures fall as escalating Iran conflict dims rate-cut hopes

US stock futures fall as escalating Iran conflict dims rate-cut hopes

Mar 23 (Reuters) – U.S. stock index futures fell on Monday as the Middle ​East conflict intensified with energy infrastructure under threat, sending oil prices surging and pushing investors to ‌reprice U.S. interest rate cut expectations.

Iran will attack Israel’s power plants and plants supplying U.S. bases in the Gulf if U.S. President Donald Trump carries out his threat to “obliterate” Iran’s power network, the country’s Revolutionary Guards said in a statement.

Oil prices rose again, with U.S. crude ​futures up 3% to over $100 a barrel, reviving inflation fears and putting central banks in a tough spot ​with regard to monetary policy.

Investors swiftly dialed back expectations of Federal Reserve interest rate cuts ⁠last week, not pricing any easing this year, compared with two cuts before the war broke out, as per ​CME Group’s FedWatch Tool.

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They also see a more than 50% chance of a rate hike in the latter half of ​the year, compared with bets for tighter policy at the beginning of last week. The repricing was partially aided by a hawkish tone struck by the Fed at its meeting last week, where it projected higher inflation and a single reduction in rates in 2026.

“If oil ​and gas prices remain at current levels for the rest of the year, central banks will have to weigh the ​pros and cons of rate cuts versus hikes. If the war ends by June…, there is little reason for central banks to ‌hike ⁠rates in 2026,” said Ed Yardeni, president of Yardeni Research.

At 04:43 a.m. ET, Dow E-minis were down 230 points, or 0.5%, S&P 500 E-minis were down 41.25 points, or 0.63%, and Nasdaq 100 E-minis were down 174.25 points, or 0.72%.

The CBOE Volatility Index (.VIX), opens new tab – Wall Street’s fear gauge – hit its highest level in two weeks and was last up 3.37 points ​at 30.15.

Wall Street’s main indexes marked their fourth week of declines on Friday, with the Nasdaq logging ​its biggest weekly drop since early February.

The small-cap Russell 2000 (.RUT), opens new tab, sensitive to higher interest ​rates, ended over ⁠10% below its record close of January 22 on Friday, confirming it had been in correction territory. Futures tracking the index (.RUT), opens new tab were down 1.2% on Monday.

In an otherwise data-light week, investors will parse through business activity surveys and consumer sentiment readings this week.