US Treasury chief says Fed should not hike rates over energy shock tied to Iran war
US Treasury Secretary Scott Bessent has asserted that the Federal Reserve should remain cautious regarding interest rate hikes amidst an energy supply shock linked to the ongoing conflict in Iran. This commentary comes as market participants are closely monitoring the implications of rising energy prices on inflation and economic stability. Bessent's stance highlights the delicate balance the Fed must navigate between controlling inflation and supporting economic growth, particularly in the face of geopolitical disturbances that can destabilize energy supplies. As traders consider this development, they will be weighing the potential for a more dovish Fed against ongoing inflationary pressures driven by higher energy costs.
Where it sits in our coverage
Our consensus EUR/USD target sits at 1.075 (median across 8 firms), with Goldman at the upper bound (1.12) and BofA at the lower (1.04). The views among major institutions suggest a divergence in anticipating how the Fed might react to external shocks like this one.
How firms align
JPMorgan shares a more optimistic view by setting their target at 1.10, aligning closely with Bessent's sentiments about cautious Fed policy given external pressures. Conversely, BofA holds a contrary stance at 1.04, indicating lower confidence in the Fed's restraint during inflationary scenarios linked to energy prices. For more on these positions, see our internal reports on each firm.
What the data shows
Current forecasts reflect a growing sensitivity to energy market fluctuations and their potential to influence Fed actions. Recent insights have noted a direct correlation between energy price movements and inflation expectations — see our research on /research/energy-inflation-trends for deeper analysis.
How firms align with this view
Aligned with the headline view
Contrary positioning
Key takeaways
- 01Fed should consider energy prices in rate strategies — key for USD.
- 02Traders should prepare for potential Fed dovishness amid rising energy costs.
- 03Watch for inflation prints that could influence Fed's decision-making.
- 04Bessent’s comments bring renewed focus on geopolitical risks in FX markets.
Market implications
Traders should watch the EUR/USD level closely around 1.075, where sentiment may shift depending on further Fed commentary. Additionally, the upcoming inflation data may provide guidance on how these dynamics play out in the coming weeks.
Risks to this view
If energy prices stabilize or drop unexpectedly, it could lead to a more hawkish Fed stance, challenging the current market sentiment. Geopolitical developments that reduce tensions in the Middle East could also flip the narrative, prompting revisions in rate hike probabilities.
Sentiment by currency
USD EUR+JPY+GBP+Composite USD score: -0.65
Sources & References
How we cover this story