Market analyst Nic Puckrin warns that traders are underestimating the economic fallout from the Middle East conflict, dismissing a “TACO” (Trump Always Chickens Out) trade expectation. If oil remains above $100 per barrel, it risks stagflation, slowing growth and raising inflation. This could prevent Federal Reserve interest rate cuts critical for risk assets like cryptocurrency. Fed Chairman Jerome Powell acknowledged the uncertainty, stating higher energy prices will push up inflation, while market odds for a rate hike in April have grown.
Analysts warn financial markets may be mispricing the severity of the Middle East conflict’s economic impact. Nic Puckrin, founder of Coin Bureau, stated traders are incorrectly banking on a “TACO” trade, a Wall Street term referring to U.S. President Donald Trump backing down in geopolitical disputes.
Puckrin cautioned that “Trump is not in sole control of the situation,” with no quick exits available. He warned sustained oil prices above $100 could slow economic growth and raise Personal Consumption Expenditures inflation by up to 1 percentage point.
This environment risks stagflation, where inflation rises alongside falling growth and employment. “If oil stays above $100 throughout Q2 and into Q3, stagflation becomes a real problem for the Fed,” Puckrin said.
The prolonged closure of the Strait of Hormuz, a channel for 20% of global oil supply, worsens economic effects. Puckrin noted that even if it reopened, repairing disrupted Gulf oil infrastructure would take months.
Elevated inflation means anticipated interest rate cuts will not materialize. The Federal Reserve may even raise rates to combat inflation, curtailing hopes for easier liquidity to spur a crypto market rally.
The Federal Open Market Committee held rates steady in March. According to the CME FedWatch tool, there is now a roughly 12% probability of a rate hike at the April meeting.
Federal Reserve Chairman Jerome Powell said the implications for the U.S. economy are uncertain in the near term. He clarified that “higher energy prices will push up overall inflation,” but it is too soon to gauge the full scope of effects.
