President Donald Trump’s decisive refusal to accept Iran’s latest offer to reopen the Strait of Hormuz has sent oil markets soaring. Brent crude climbed roughly 2% after the White House’s clear message, keeping the benchmark above the $100 mark for three consecutive weeks. The surge reflects both the administration’s firm foreign‑policy posture and the renewed flow of crude from key Middle‑East exporters, which Kpler estimates rebounded to 12.8 million barrels per day in September – the highest level since the conflict began.
Energy markets feel the impact of a prolonged conflict
With no truce in sight, diesel prices have hit record highs, and the crack spread sits near $75, far above the historical average of $15. Such energy shocks make it increasingly difficult for central banks to “look through” price pressures. As a result, the Reserve Bank of Australia is expected to raise its cash rate to a 15‑year high on Tuesday, signaling that tighter monetary policy is likely to spread worldwide.
Fed expectations remain hawkish
U.S. markets have priced in a 66 % chance of a Federal Reserve hike in October, and traders see roughly 90 basis points of total tightening ahead. The outlook for rate cuts is effectively pushed out to mid‑2028, which explains why two‑year Treasury yields have jumped 55 basis points this month alone. The 30‑year Treasury has risen 25 basis points in September, largely due to an increase in the term premium that brings long‑term yields back to pre‑2008 levels.
Higher neutral rate on the horizon
Bond market analysts note that the “neutral” rate – the level that neither stimulates nor restrains the economy – appears to be shifting higher, reminiscent of the 1990s era. This new benchmark reflects the lasting influence of elevated energy prices and a robust global growth outlook.
Growth forecasts stay upbeat
Despite the energy‑price headwinds, the AI‑driven boom and strong purchasing‑manager indexes have prompted upward revisions to growth forecasts for Asia, Europe, and the United States. The Atlanta Fed’s GDPNow model now projects third‑quarter U.S. GDP growth at a brisk 5.0 %, and investors await the upcoming ISM survey to confirm the strength of the manufacturing sector.
Key market events to watch
- Dallas Fed September manufacturing survey
- Fed speakers: Vice Chair for Supervision Michelle Bowman, Governor Lisa Cook, Richmond Fed President Thomas Barkin
- ECB President Christine Lagarde and board members Frank Elderson and Pedro Machado
- Bank of England Deputy Governor for Markets and Banking Dave Ramsden
- Norway Central Bank Deputy Governors Pal Longva and Øystein Borsum
Overall, President Trump’s unwavering approach to Iran and the resulting energy market dynamics are shaping a tighter monetary environment worldwide. Investors and policymakers alike will be watching how central banks respond to the sustained price pressures while growth remains resilient.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
