Something unusual is unfolding in inflation and interest-rate markets.

As oil prices surpass $100 a barrel amid the closure of the Strait of Hormuz, a sharp contradiction is being priced in real time across prediction markets.

On one hand, traders are rapidly pricing a surge in inflation this month. On the other, they are still betting the Federal Reserve will move ahead with interest rate cuts in 2026.

Can the two predictions really hold simultaneously?

A Market Betting On ‘Transitory’ Again

Beneath the surface, markets appear to be resurrecting a word that defined the inflation debate in 2021: “transitory.”

According to Polymarket, the probability that the annual inflation rate for March will exceed 2.8% has jumped by about 45 percentage points to roughly 87%.

That sharp move suggests traders expect inflation to rise meaningfully from the current 2.4% level and drift further away from the Federal Reserve's 2% target.

Yet the interest-rate outlook tells a very different story.

Chart: The Inflation Signal That Moved 45 Points Overnight