Overview
President Donald Trump renewed public pressure on the Federal Reserve on Thursday, telling Chair Jerome Powell in a Truth Social post that "He should be dropping Interest Rates, IMMEDIATELY." The comment came as oil prices climbed amid an intensifying conflict with Iran, prompting investors to pare back expectations for rate cuts later this year.
Market reaction since the strikes
Since U.S. and Israeli forces struck Iran on February 28, markets have shifted toward pricing fewer Federal Reserve easing moves. Interest-rate futures that, before the conflict, implied two quarter-point rate cuts by year-end are now pricing in barely one such cut. That reassessment persists even though Kevin Warsh, a former Fed governor favored by Trump as a more rate-cut-friendly successor to Powell, is expected to take over the central bank in mid-May when Powell's leadership term ends.
Energy and supply-route risks
Iran's new Supreme Leader, Mojtaba Khamenei, vowed on Thursday to keep the Strait of Hormuz closed, a move that would impair transit for about one-fifth of the world's oil supply. U.S. West Texas Intermediate crude responded by jumping and settling at $95.70 per barrel.
Higher crude typically pushes gasoline prices up and can ripple through the economy by raising transport costs for goods. Analysts in the market also expect food prices to climb because the Strait of Hormuz is a major conduit for fertilizer shipments; disruptions there could reduce fertilizer availability and add upward pressure to agricultural costs.
Inflation forecasts and Fed timing
Goldman Sachs analysts said on Thursday they now project personal consumption expenditures (PCE) inflation - the Fed's preferred inflation gauge - to rise to 2.9% by December. Reflecting that outlook, the firm moved its forecast for the Fed's next rate cut from June to September.
Implications
The combination of a sharpened geopolitical risk, higher oil prices and revised inflation projections has led market participants to scale back expectations for monetary easing this year. That recalibration affects fixed income and rate-sensitive sectors, and leaves the timing and scale of any Fed action more uncertain despite political calls for quicker cuts.
Note: This report reflects the facts and forecasts presented by market participants and analysts as of the dates cited. It does not introduce new data or claims beyond those reported.