Middle East Tensions and Hawkish Fed: The Dual Threat to Risk Assets as FOMC Meets

• The oil futures already spiked between 4% to 7% before stabilizing slightly
• FOMC meeting is scheduled for tonight, where it’s expected that the Fed will hold rates steady at approximately 4.50%
• All major cryptocurrencies have suffered a small price drop of around 1% to 2% in the last 24 hours

The Israel-Iran conflict enters day six, and once again, the ongoing missile exchanges have raised serious concerns about a possible disruption or blockade of the Strait of Hormuz. 

That chokepoint is vastly important for global oil shipments, and the oil futures already spiked between 4% to 7% before stabilizing slightly.

Geopolitical Jitters and the Oil Factor

Naturally, the fear of escalation is present, and any disruption in the strait could cause the oil prices to surge, which would likely impact all kinds of markets, crypto included.

Then, there’s the FOMC meeting tonight, where crypto enthusiasts hope for some good news, even though the Fed is expected to hold rates steady at 4.50%. Due to the current geopolitical risks, it’s expected that the meeting will have a more hawkish tone to acknowledge inflation risks from oil supply concerns.

All Eyes on a Hawkish Federal Reserve

Jerome Powell is scheduled to host a live press conference at the FOMC, and the crypto market will look out for any signs of positive developments to hopefully add a boost to the industry.

At the moment, market pricing has factored in two rate cuts in 2025, but a cautious Fed outlook may reduce that expectation to just one cut, reflecting the geopolitical variable.

Market reactions and implications

Interestingly enough, while implied volatility metrics are elevated, they haven’t spiked dramatically. This is good news, for now at least, as the VIX (volatility index) now sits near 20, which indicates caution but not panic.

As expected, the Middle East conflict brought a shift in the markets, where energy stocks have rallied, while broader equities have shown mixed results. For instance, US futures are modestly higher, European markets are trading cautiously, and oil-focused sectors backed energy-heavy indexes.

Additionally, market liquidity may tighten, especially for risk assets like Bitcoin. As such, hawkish repricing could pressure crypto and equities. On the other hand, if the Fed signals resilience, some risk-on assets may rebound. Once more, this will likely depend on the outcome of tonight’s FOMC meeting.

When we look at the cryptocurrencies, all major tokens have suffered a small price drop of 1% to 2% in the last 24 hours. This is understandable considering the situation in the world at the moment, but the price can go either way in the upcoming days, depending on the FOMC meeting and how the Israel-Iran clash progresses.