The political desire for easy money is violently colliding with the reality of geopolitical inflation.
Despite President Trump’s public demands for the Federal Reserve to drop interest rates “IMMEDIATELY,” the bond market is aggressively betting the exact opposite as the Middle East conflict escalates.
🛢️ THE STAGFLATION CATALYST:
- The Choke Point: Iran has vowed to keep the Strait of Hormuz shut, disrupting 20% of global oil supply and critical fertilizer shipments.
- The Price Action: WTI crude just surged to $95.70, guaranteeing a downstream spike in gasoline, transport, and food costs.
- The Inflation Revision: Goldman Sachs now projects PCE inflation to hit 2.9% by December, pushing their rate cut expectation from June to September.
📉 THE MARKET REPRICING: Before the Feb 28 strikes, interest-rate futures priced in two rate cuts this year. Today, the market is barely pricing in one. This holds true even with the expectation that Kevin Warsh (a historically rate-cut-friendly pick) will succeed Jerome Powell as Fed Chair in mid-May.
💡 THE BOTTOM LINE: The Fed cannot print oil, and rate cuts cannot reopen the Strait of Hormuz. Until this supply-side energy shock is resolved, any premature dovish pivot risks triggering a devastating second wave of inflation.
👇 Macro Strategists: Will incoming Fed Chair Kevin Warsh cave to political pressure and cut rates into an oil shock, or will the inflation mandate force him to hold the line?
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