Traders are underestimating both the severity and duration of the economic consequences stemming from the ongoing Middle East conflict, according to Nic Puckrin, market analyst and founder of Coin Bureau. Puckrin says markets are pricing in what Wall Street calls a “TACO” trade — shorthand for “Trump always chickens out” — a term describing the expectation that US President Donald Trump will retreat from geopolitical standoffs. He cautions, however, that Trump does not have unilateral control over the situation and that there are no swift or simple exits from the conflict.
A central concern is the price of oil. If crude continues trading above $100 per barrel, Puckrin argues that economic growth will decelerate and Personal Consumption Expenditures inflation could climb by as much as one percentage point. This combination of rising prices and slowing growth raises the prospect of stagflation, a scenario he describes as particularly damaging because it simultaneously erodes employment and purchasing power while limiting the tools available to policymakers.
Puckrin also highlights the strategic importance of the Strait of Hormuz, a waterway through which approximately 20% of the world’s oil supply passes. He warns that the longer the strait remains closed, the more severe the downstream economic effects will become. Even if access were restored immediately, he notes, damage to oil-producing infrastructure in the Gulf region would require months of repair before normal supply levels could resume.
Because energy is a foundational input across all sectors of the economy, elevated energy costs tend to push up the prices of goods and services broadly. This inflationary pressure has direct implications for monetary policy. Higher inflation would reduce the likelihood of interest rate cuts from the Federal Reserve, which are generally considered stimulative for risk assets including cryptocurrencies. Puckrin suggests the Fed could instead be compelled to raise rates, effectively eliminating conditions that might otherwise support a crypto market rally.
The Federal Open Market Committee held its benchmark interest rate steady in March, keeping the Federal Funds rate in a range between 3.5% and 3.75%. Rate cut expectations for the upcoming April meeting have largely evaporated. Data from the Chicago Mercantile Exchange‘s FedWatch tool now shows approximately a 12% probability that the FOMC will actually increase rates at its next gathering, a figure that has been gradually rising.
Federal Reserve Chairman Jerome Powell addressed the situation at a press conference on Wednesday, acknowledging that higher energy prices will exert upward pressure on overall inflation. He added, however, that it remains too early to fully assess the scope and severity of the economic impact from the conflict and the disruption it has caused to global energy infrastructure. Markets, Puckrin warns, may face a sharp reassessment if the situation does not resolve as quickly as current pricing implies.
Originally reported by CoinTelegraph.
