Hasset, core member of Trump's economic "Think Tank": Oil prices will drop significantly after the peace agreement is reached, Fed's interest rate cut window will reopen.

Director of the White House National Economic Council Kevin Hassett said in a weekend media interview that if a geopolitics agreement to reopen key shipping routes is finalized, the Trump administration expects oil prices to significantly drop. He believes that lower energy costs could significantly ease inflationary pressures and ultimately create more room for the Federal Reserve, under Powell's leadership, to cut interest rates. In an interview with Fox News, Hassett said that the global oil trading market is already anticipating a potential drop in crude oil prices, as buyers are becoming more cautious about purchasing oil at current spot prices, expecting more supply to come online quickly after a peace agreement between the U.S. and Iran. If energy prices fall, he believes the Fed has enough room to cut interest rates. He pointed out that Saudi Arabia and the United Arab Emirates could significantly increase production, and the U.S. maintaining high shale oil production are factors that could quickly stabilize the market. "We have seen signs that people are now a little cautious about buying oil in the spot market because they expect prices to drop significantly soon," Hassett said. "This is a very, very good sign." Hassett is considered a key figure in the Trump administration's economic policy "think tank," and his latest statements are of great significance to the trajectory of the stock market that Trump himself highly values: it provides the market with a script for "oil price decline - inflation cooling - U.S. Treasury yield decline - Federal Reserve regaining room for interest rate cuts." If the U.S.-Iran agreement pushes for a phased reopening of the Strait of Hormuz, the pressure on oil prices and gasoline prices will ease, and the sectors that will benefit the most directly in the stock market are aviation, commercial transportation, non-essential consumption, industrial, small cap, and high valuation growth stocks; these sectors were previously most suppressed by the resonance of oil prices and long-term U.S. Treasury bond yields. In the early stages of Monday's Asian markets, signals about the U.S.-Iran agreement and the reopening of the strait have caused international benchmark oil prices - Brent crude oil futures trading prices to drop by about $5 per barrel, plummeting to around $98.76 per barrel. Investors continue to watch oil prices, inflation, and timing of Fed policy Hassett's latest comments are of significant importance to investors as they link the three major drivers of the market together: energy prices, inflation expectations, and interest rate prospects. The U.S. stock market has been on a strong bull run since 2023 driven by AI investment enthusiasm and strong earnings from companies closely associated with AI computing power, but higher oil prices since the end of February due to the Iran conflict have raised concerns about the possibility of inflation speeding up again and significantly delaying easing policies by the Federal Reserve and potentially pushing them back into a path of rate hikes. Hassett believes that while energy prices have been a continuous concern for American consumers, broader inflation pressures are still under control. He mentioned declining prices of groceries and prescription drugs, efforts to relax regulation, and continued productivity growth related to artificial intelligence, believing that these forces could offset energy-driven trends in inflation. "As long as we let energy prices fall again, you might actually see negative inflation data because energy prices are going to drop rapidly," Hassett said. The senior official of the Trump administration also refuted predictions about a significant increase in oil prices if shipping disruptions worsen, pointing out that crude oil prices are still below some of the most extreme predictions. West Texas Intermediate crude oil futures closed at $97 per barrel on Friday, a substantial 59% increase over the past 12 months. "At first, the naysayers would say, if we shut down the Strait of Hormuz, oil prices will be much higher than $150," Hassett said. "So now we're here, you know, still maintaining slightly below $100." Uncertainty still exists in the Fed's monetary policy outlook Hassett mentioned the newly appointed Fed Chair Kevin Warsh, calling him a very experienced policy maker who can navigate difficult economic environments. While emphasizing the Fed's independence, Hassett suggested that a drop in energy prices and other anti-inflation trends could ultimately make lower interest rates by the Fed more reasonable. "There are a lot of things that are putting downward pressure on prices," Hassett said, mentioning AI-driven productivity improvements and a "huge and unprecedented AI capital spending boom." He added that once energy prices drop rapidly, "the Fed will have a lot of room to do the right thing in lower interest rates." As these remarks are made, with the approaching North American summer driving season, the bond market is becoming increasingly sensitive to inflation risks associated with rising gasoline prices. With some policymakers warning recently that continued inflation may even require a tighter monetary policy by the Fed, investors have been reevaluating the Fed under Warsh's leadership and how quickly it may turn to a path of monetary policy tightening. Amidst the largest spike in inflation data since 2023 due to the Middle East Iran conflict, global bond market traders are actively pricing in the trend that the Fed is almost certain to begin raising interest rates before December, reflected in bond traders pricing in almost 100% chance of a 25 basis point rate hike by the Fed before December. This sharp reversal from just three months ago reflects the impact of geopolitical turmoil, U.S. economic resilience, and the tightening tone of monetary policy brought on by the AI investment boom driving the stock market higher. Hassett criticized the consumer confidence data compiled by the University of Michigan, arguing that partisan responses distorted the ultimate reliability of the consumer confidence survey index. He compared this indicator to the Consumer Confidence Boards index, saying that the latter better reflects trends in non-farm income growth in the U.S. Hassett stated that stronger retail sales and tracking showing GDP growth expectations of over 4% in the second quarter suggest that despite concerns about gasoline prices and inflation, American consumers, vital for the U.S. economy, still have spending resilience. Hassett's latest remarks provide the market with a script for a "declining oil prices - cooling inflation - U.S. Treasury yield decline - Federal Reserve regaining room for interest rate cuts" reversing the trend of rising inflation. Hassett believes that the agreement will bring more oil supply and significantly lower gasoline prices. Over the weekend, reports suggested that the U.S. and Iran are about to reach an agreement that would extend the existing ceasefire for 60 days, during which time the Strait of Hormuz will be reopened, allowing Iran to sell its oil. Therefore, in early Asian trading on Monday, oil prices fell and U.S. Treasury futures saw a slight rise. The global benchmark Brent crude oil dropped by 5.2% to $98.12 per barrel, while WTI crude oil approached $92 per barrel. However, the latest reports indicate that Trump still emphasizes not reaching an agreement hastily, and that fully restoring energy flows may face constraints such as execution, de-mining, insurance, and security guarantees. For the U.S. stock market, what Hassett truly released is a marginal improvement in policy combination expectations: the White House hopes to package energy price declines, AI productivity improvements, regulatory relaxation, and capital expenditure boom as a "manageable inflation and strong growth" soft landing narrative. If this combination plays out, the U.S. stock market bull run will expand beyond just relying on the Magnificent Seven of the U.S. and AI-driven profits, extending to consumption, cyclical, transport, and rate-sensitive sectors, improving market breadth and making the bullish structure of the S&P 500 index healthier. However, the bond market will remain cautious. Strategists have previously warned that even if the Iran conflict ends, long-term yields may not fall rapidly, as real yields, fiscal deficits, AI capital expenditure financing, large government debt supply, and higher neutral rates could keep U.S. bond yields high. Therefore, Hassett's "falling oil prices open up room for rate cuts" is a positive option for the U.S. stock market, but not a definitive conclusion; it requires oil prices to continue falling, PCE inflation and consumer inflation expectations to cool synchronously, consumer confidence to recover, fiscal spending to shrink, and the Fed to confirm that further tightening is no longer necessary.