The prediction market's most dramatic reversal centers on Federal Reserve rate expectations, where traders have executed a stunning about-face as Middle East conflict roils energy markets. Fed funds rate markets show above-4.25% odds plunging from 61¢ to 10¢ for April 2027, while above-2.00% expectations collapsed from 76¢ to 27¢. This systematic repricing reflects the Fed's signal that only one rate cut remains likely in 2026 despite elevated uncertainty.

The shift comes as fighting with Iran threatens to keep inflation above the Fed's 2% target through oil market disruption. What started as a dovish 2026 trajectory has morphed into a higher-for-longer scenario, with markets now pricing rates staying elevated well into 2027. The Fed's own projections show inflation expectations rising to 2.7% for 2026 before falling back toward the 2% target in subsequent years, suggesting this repricing may persist until geopolitical tensions subside.