Inflation is rising again, and fixed income markets are now pricing in rate hikes instead of cuts as the energy shock from the Strait of Hormuz closure ripples through the economy. Before the conflict with Iran, inflation had been easing and moving closer to the Fed’s 2% target, and markets expected rates could fall. But with the Strait still effectively closed and energy shipments constrained, prices have jumped sharply. Consumer Price Inflation hit a 3.8% annual rate in April, up from 2.4% in February, and those increases are now feeding through to broader categories across the economy.

That shift matters because when inflation accelerates, the Federal Open Market Committee is typically more inclined to raise interest rates to keep price pressures in check. Higher rates remain the Fed’s primary........

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