US-Iran Conflict Intensifies, Driving Up International Oil Prices and Strengthening Possibility of Fed Rate Hikes

The war between the United States and Iran has caused international oil prices to surge, and the Federal Reserve’s likelihood of not cutting rates but instead raising them is increasing. This change signals to the financial markets that the Fed is preparing to adopt tightening policies to curb rising prices.

Recently, the Federal Reserve decided to keep the benchmark interest rate between 3.50% and 3.75% due to uncertainties in the Middle East. This aligns with the approach of major central banks like the Bank of England and the European Central Bank, which have paused rate hikes or even hinted at possible increases due to inflation concerns. Notably, the Bank of England has suggested it may raise rates when prices soar, causing significant shocks to the bond market.

The two-year U.S. Treasury yield, which is sensitive to interest rate changes, has also risen sharply recently. This reflects market expectations that the Fed may shift to rate hikes sooner than anticipated. If high oil prices caused by the U.S.-Iran conflict persist and lead to prolonged inflation, the Fed may need to readjust its monetary policy stance.

Going forward, major central banks are expected to closely monitor the inflation impact of rising oil prices and proceed cautiously with policy decisions. Dakota Wealth Management’s portfolio manager mentioned that if shipping through the Strait of Hormuz resumes, oil price pressures could ease, while also noting that markets are closely watching the possibility of rate hikes within the year.

This trend suggests that as long as inflationary pressures remain unrelieved, signals of rate hikes in global financial markets could strengthen. As central banks’ responses attract attention, policy adjustments are expected to be made based on changing economic conditions.