From the escalation of the Middle East situation to soaring oil prices, the global interest rate market has experienced a rapid &#34;hawkish repricing&#34; over the past two weeks.
However, according to the Chase Trading Desk, the latest strategy reports from JP Morgan, UBS, and Goldman Sachs all point to the same conclusion: the market has priced the linear logic of &#34;rising oil prices equals central bank interest rate hikes&#34; too aggressively, while underestimating the growing costs of the oil price shock.
The scale of the repricing has specific metrics: the European Central Bank's policy rate expectations for 2026 have been raised by over 55 basis points, federal funds futures have reduced rate cut expectations by about 40 basis points since the beginning of this month, and the two-year yields in both the US and Europe have risen by about 35 to 40 basis points. The bets in the Asian market are even more extreme—current interest rate curves have factored in four rate hikes each for South Korea and India over the next two years.
Goldman Sachs has characterized the fluctuations in monetary policy factors over the past two weeks as the third-largest two-week decline since 2000. UBS forex strategist Rohit Arora pointed out in a report on March 16 that oil supply disruptions have caused recent oil futures prices to exceed central bank expectations by 50%.
The core rebuttal logic from the three institutions is similar: the essence of this round of oil price shock is a &#34;supply-side growth tax,&#34; rather than a broad inflation spiral like in 2022. JP Morgan strategist Mislav Matejka bluntly stated, &#34;The surge in oil prices driven by geopolitical escalation is clearly detrimental to growth and makes it difficult for central banks to return to a tightening liquidity path.&#34; UBS Asia strategist Rohit Arora also noted that the real threshold for rate hikes is much higher than current market pricing, with central banks around the world currently leaning towards a policy combination of &#34;stabilizing exchange rates, ensuring liquidity, and fiscal support,&#34; rather than directly using policy rates.
<h2>The Two-Week Repricing Approaches Historical Extremes</h2>
Goldman Sachs quantified this round of shock using its main component factors and concluded: The decline in monetary policy factors over the past two weeks ranks as the third largest since 2000.
The expression of the interest rate market is concentrated at the front end. The pricing of &#34;front-end rates moving up over the next 12 months&#34; in most G10 economies has reached its largest extent since 2023, with notable selling in the front end of the British pound. The US dollar is the only exception—its front-end curve is still pricing in rate cuts over the next 12 months, forming a clear divergence from other markets.
The reaction in the Asian market has also been severe. According to the UBS report, near-term oil futures are about 50% higher than the assumptions used by many Asian central banks in their inflation forecasts. Their calculations show that for every 10% increase in oil prices, the average CPI in emerging Asia rises by about 25 basis points; if oil prices maintain an average of around $85 per barrel for the year, the overall CPI in emerging Asia could be about 60 basis points higher than central bank forecasts—this would directly rewrite the inflation forecast paths of various central banks.
However, Goldman Sachs pointed out that despite short-term rates rising due to hawkish expectations, its rate team has actually lowered the forecasts for 10-year yields in the US and Germany, citing that the downside growth risks will suppress the upward space for long-term yields. &#34;Downside growth risks will limit the upward space for 10-year yields in the US and Europe,&#34; wrote Goldman Sachs portfolio strategy analyst Andrea Ferrario in the latest weekly report
<h2>&#34;Growth Tax&#34; Logic: Oil Price Shock May Not Drive Central Bank Rate Hikes</h2>
The strategies of three institutions repeatedly emphasize the essential differences from 2022, which is the core support for current judgments.
The inflation spiral in 2022 was the result of multiple overlapping factors: in addition to rising energy prices, there was also a rebound in post-pandemic demand and ongoing supply chain distortions. Matejka pointed out that before the current conflict occurred, inflation expectations, wage growth, and service inflation were already on a downward trajectory—these are the most critical fuels for the inflation spiral. At this starting point, a short-term spike in oil prices is more likely to be &#34;seen through&#34; by the central bank, rather than triggering a systemic rate hike response.
The logic holds true on the other end as well: if the oil price shock ultimately drags the economy into recession, the central bank is even less likely to raise rates; if geopolitical tensions ease, inflation pressures may also dissipate. In both scenarios, the currently priced aggressive rate hike path is difficult to implement.
Economists at JP Morgan also provided a clear threshold: crude oil needs to remain at $125 per barrel or above for the shock magnitude to approach that of past significant shocks; to reach a scale similar to the early stages of the Russia-Ukraine conflict, crude oil may need to approach $150 and remain there for several months. In a relatively mild scenario, even if the conflict subsides but risk premiums remain high, global CPI inflation in 2026 could rise by about 0.5 percentage points from already elevated levels—yet even so, they do not believe this will lead to the kind of rate hike path currently expected in the European market, as regional growth is more sensitive to such shocks.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/bf5decf5-ff16-4596-b9ac-7784f021b537.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/bf5decf5-ff16-4596-b9ac-7784f021b537.png"/>
<h2>Asia Divergence: Inflation Pressures Highest in the Philippines, South Korea, and Indonesia, but Rate Hike Threshold Remains High</h2>
Even though the overall rate hike pricing is relatively aggressive, there are significant differences in the vulnerability of different economies.
UBS's scenario analysis is based on an average oil price of $85 per barrel: the Philippines' CPI in 2026 may rise from the central bank's forecast of 3.6% to about 4.3%, deviating from the 3.0% target by about 1.6 percentage points; South Korea may rise from 2.2% to about 2.8%, deviating from the 2.0% target by about 1.0 percentage points; Indonesia may rise from 2.5% to about 3.1%, deviating from the target by about 0.8 percentage points. In contrast, Malaysia's deviation is only about 0.2 percentage points, Singapore is essentially zero, India is slightly below its 5.0% target, and Thailand's inflation remains below target even with rising oil prices.
However, UBS emphasizes that &#34;excessive inflation&#34; does not automatically equate to &#34;central bank rate hikes,&#34; as the following conditions must also be met: oil prices must remain above $80 per barrel in the second half of the year, growth spillover effects must remain moderate, and there must be clearer second-round inflation risks. Their historical sensitivity estimates show that oil prices in the $80 to $90 per barrel range could reduce emerging Asia's GDP by about 60 basis points or lower emerging Asia's growth rate by about 1 percentage point compared to trend—Philippines and Thailand have higher growth exposure, while Malaysia is relatively lower.
Additionally, UBS points out that the current starting point for real interest rates in Asia is about 225 basis points higher than in 2022, which further raises the threshold for initiating rate hikes
<h2>The Actual Choices of Central Banks: Exchange Rate Intervention and Fiscal Priorities</h2>
The actual actions of major central banks currently show a significant gap from the aggressive pricing in the interest rate market.
According to a UBS report, the main theme of recent policy responses from various countries is exchange rate smoothing, liquidity stabilization, and targeted fiscal support, rather than directly tightening monetary policy. India is smoothing its exchange rate while purchasing bonds through open market operations and conducting foreign exchange swaps; the fiscal side has seen parliament approve approximately $24 billion in net new spending for the new fiscal year. The Bank of Indonesia prioritizes currency stability, intervening in both the spot and NDF markets; South Korea has introduced a supplementary budget of about 20 trillion won and a fuel price cap, with the central bank also announcing the purchase of about 3 trillion won in government bonds to stabilize the market.
UBS categorizes potential policy paths into three types: the Monetary Authority of Singapore may take action first due to growth factors, with an increased likelihood of a policy slope adjustment (0.5% p.a.) above baseline appearing in mid-April; if high oil prices persist, South Korea, Malaysia, and the Philippines may consider calibrated rate hikes in the second half of the year, but this is &#34;not a baseline judgment&#34;; meanwhile, economies like India, Thailand, and Indonesia, which are in a rate-cutting or easing mode, are currently facing more of a pause in rate cuts rather than a shift to rate hikes.
Goldman Sachs economists expect that several major central banks (the Federal Reserve, European Central Bank, Bank of England, Bank of Japan, Swiss National Bank, Swedish Riksbank, and Bank of Canada) are likely to maintain interest rates unchanged this week, with the only expected rate hike coming from the Reserve Bank of Australia. The pattern of &#34;many meetings but little action&#34; contrasts sharply with the aggressive pricing in the interest rate market.
<h2>Positions Not Cleared, Sentiment &#34;Surrender&#34; More Easily Hit by Volatility</h2>
The misalignment between sentiment and positions is another operational risk point repeatedly highlighted by three institutions.
JPMorgan observed that the market narrative has quickly shifted from &#34;buying the dip&#34; at the beginning of the conflict to &#34;betting on a protracted war, new highs in oil prices, and a repeat of 2022.&#34; However, technical indicators and position data do not support the notion that &#34;complete clearing&#34; has been achieved—major market RSI remains above 30, and changes in positions reflect more of a reduction in risk exposure rather than a general shift to net short. This sentiment &#34;surrender,&#34; in the view of the Matejka team, has actually raised the cost of continuing to short.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/96af993e-ec30-44a1-a13d-88f507994885.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/96af993e-ec30-44a1-a13d-88f507994885.png"/>
Goldman Sachs also pointed out that compared to 2022, the current market's repricing of growth risks is clearly insufficient: excess returns on credit, the performance of cyclical stocks relative to defensive stocks, and the pricing of U.S. stocks in relation to recession have not reached the level of &#34;something big is about to happen&#34;; the decline in U.S. and German 10-year government bonds has also been more restrained.
This structure has also undermined the effectiveness of stock-bond hedging. Goldman Sachs' calculations show that the beta of the S&amp;P 500 to U.S. 10-year real rates and breakeven inflation has clearly turned negative. This means that interest rate fluctuations no longer naturally favor defensive allocations, and the importance of active hedging tools has increased accordingly.
JPMorgan's judgment is that if a true &#34;clearing moment&#34; occurs, it may concentrate within a 2 to 3-day selling window and could coincide with oil prices soaring to around $120 to $130—however, after that, a reverse &#34;risk-on&#34; rally is more likely to go further

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The escalation of the situation in the Middle East has triggered a two-week "hawkish repricing" in the global interest rate market, with the European Central Bank raising its rate expectations for 2026 by more than 55 basis points. The Asian markets have already priced in four rate hikes each for South Korea and India. However, JP Morgan, UBS, and Goldman Sachs have issued a rare joint warning: the market's linear logic of "rising oil prices = central bank rate hikes" is overly aggressive in its pricing—this round of shocks is essentially a "supply-side growth tax," rather than an inflation spiral like in 2022. The central banks' real actions are to stabilize exchange rates and ensure liquidity, rather than to adjust interest rates

- Recent geopolitical tensions and rising oil prices have prompted a rapid "hawkish re-pricing" in global interest rate markets.  
- Major banks like JPMorgan, UBS, and Goldman Sachs have concluded that the market's assumption linking rising oil prices directly to central bank interest rate hikes is overly aggressive, potentially underestimating the economic costs of higher oil prices.  
- The projected adjustments in monetary policy, particularly in Europe and Asia, indicate that many central banks may prioritize stability and liquidity over immediate interest rate increases.

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Oil prices soar, central bank interest rate hikes? Market pricing may have gone too far