President Donald Trump is exerting significant pressure on the Federal Reserve to reduce its key interest rate. However, as the conflict in Iran approaches its fourth week, economists at Bank of America have suggested a potential policy shift that could go against this trend.
While the economists still believe that rate cuts are more probable than increases, they outlined scenarios where the U.S. central bank might find it necessary to adopt a tighter monetary stance due to rising energy prices and an ongoing Middle Eastern crisis.
In their analysis, they indicated that the chances of an interest rate hike would grow if Fed Chair Jerome Powell remains in his position longer than anticipated, if unemployment stays below 4.5%, and if inflationary pressures from escalating energy costs begin affecting other sectors of the economy.
This evaluation coincided with Bitcoin trading below $70,000 according to CoinGecko. Earlier this week, this cryptocurrency reached a 45-day peak of $75,600 after dipping as low as $63,000 on the day hostilities between Israel and Iran escalated.
James Butterfill from CoinShares remarked that risk assets like stocks and cryptocurrencies may experience short-term challenges should the Fed decide to raise rates after previously cutting them last year. He noted that since Powell stated it was “too soon” to assess how war impacts economic conditions on Wednesday, exchange-traded funds linked to cryptocurrencies have seen consecutive outflows—potentially foreshadowing market reactions following any rate hikes.
“The initial response for Bitcoin wouldn’t be positive,” he commented. “However, I believe it would rebound strongly once people recognize we might be entering a stagflation scenario.”
A situation characterized by high inflation coupled with stagnant growth and elevated unemployment could echo concerns about currency devaluation and financial security—issues highlighted by BlackRock CEO Larry Fink when he referred to crypto and gold as “assets of fear” last October.
This sentiment was echoed by Gerry O’Shea from Hashdex who argued that macroeconomic challenges for Bitcoin are unlikely to hinder institutional investors’ adoption efforts aimed at benefiting their clients’ portfolios.
‘Uncomfortably High’
On Friday, West Texas Intermediate crude oil prices dipped slightly down to $109 per barrel according to Trading Economics data. The ongoing conflict in Iran has disrupted global energy markets through restrictions on critical routes such as the Strait of Hormuz; consequently pushing U.S. benchmark prices up as high as $116 per barrel recently.
The economists at Bank of America stated conditions for raising rates would likely be met “if moderate but sustained shocks from Iran occur,” identifying price levels between $80-$100 per barrel as optimal for such actions.
At Myriad—a prediction market owned by DASTAN (the parent company of Decrypt)—traders estimated there’s a 67% chance Brent crude oil will reach $120 per barrel before dropping back down towards $55 per barrel while also assigning an 11% probability for achieving ceasefire negotiations with Iran within this month’s timeframe.
The bank’s analysts remain among those predicting two cuts totaling 25 basis points each later this year; however traders appear cautious until mid-2027 based on CME FedWatch indicators.
“We’re still quite far away from any hikes,” Zach Pandl at Grayscale told Decrypt.
“Unless rising oil prices begin influencing long-term inflation expectations significantly enough then officials will likely view these changes merely transitory.”
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