Trump's Iran War Inflation Forging Ahead

The Fed's May Inflation Forecast is not looking good for Wall Street

Acrimonious Moron Donald Trump has been harassing Fed Chair Jerome Powell over interest rates. I asked AI, "Why does Trump want lower interest rates?" and its answer is:

"Trump wants lower interest rates to reduce the cost of borrowing for the federal government, which would help manage the large national debt and potentially save taxpayers money. He believes that lower rates could stimulate economic growth and benefit his own financial interests as well."

Then, there is an unprecedented level of division within the Federal Open Market Committee (FOMC) -- the 12-person body responsible for setting U.S. monetary policy.

But the Dow Jones, the S&P 500, and the Nasdaq Composite have all reached new heights. The question is: Can they stay there, following concerns about rising inflation? Or is this a bubble that's about to burst, like it did in 1999-2000 with the Internet dot.com and biotech boom? 

For a while, Powell blamed elevated inflation on Trump's tariffs. But now the focus in on the disaster the Iran war is having on inflation. Shortly after the U.S. and Israel attacked Iran last February 28, the Strait of Hormuz became water-proof (no pun intended) to maritime commercial transport. Some 20% of total worldwide demand for oil (20 million barrels of petroleum liquids per day) came to halt. Experts say it is the largest energy supply disruption in history.

Crude oil prices started soaring and gas prices were rising at the pump at their fastest pace in 30 years.

According to experts, the inflationary impacts on businesses often lag behind the bad news. But when the soaring cost of energy hits production and transportation and the cost of these is factored in, inflation rages even more further.

Before the Iran war, U.S. inflation was at 2.4%. Then within a month or two, the Bureau of Labor Statistics reported inflation of 3.3% in March and 3.8% in April). Inflation had jumped to a three-year high, i.e. higher than much maligned Joe Biden was blamed for. Donald Dumb-caused inflation has surpassed Joe Biden's. 

Now, inflation for May is estimated at 4.18%, and the quarterly annualized Consumer Price Index is pacing a 6.89% increase for the second quarter!

When 2026 began, Wall Street and investors had been factoring in several rate cuts for 2026-2027. Lower lending rates were expected to fuel the artificial intelligence data center build-out and prop up a historically expensive stock market. The only time the S&P 500's Shiller Price-to-Earnings Ratio has been higher over the last 155 years was in the lead-up to the bursting of the dot-com bubble.

The inflationary spike from the Iran war has effectively removed any chance of rate cuts in 2026, and perhaps beyond. It may even coerce the FOMC to raise rates if prices continue trending higher.

Further complicating matters is the ascension of new Fed Chair, Kevin Warsh. Warsh's previous time on the FOMC (Feb. 24, 2006 – March 31, 2011) shows he favored higher interest rates to suppress inflation. Warsh will also be tasked with overseeing a fractured FOMC. If dissenting opinions persist, the nation's central bank could lose some of its hard-earned credibility.

The Fed's latest inflation update is nothing short of nightmare fuel for the stock market.

[The Backbone of this article is from MotleyFool's https://www.fool.com/]