Traders are underestimating the scope and duration of economic fallout from the Middle East conflict, pricing in a so-called “TACO” trade — “Trump always chickens out” — according to market analyst Nic Puckrin, founder of the Coin Bureau. The phrase, coined on Wall Street, assumes U.S. de-escalation, but Puckrin warned that “Trump is not in sole control of the situation,” and there are no easy or quick exits from the war.
If oil remains above $100 per barrel, Puckrin said economic growth will slow and Personal Consumption Expenditures (PCE) inflation could rise by as much as one percentage point. That mix — higher inflation alongside falling growth and employment — could tip the U.S. into stagflation. “If oil stays above $100 throughout Q2 and into Q3, stagflation becomes a real problem for the Fed. In the 1970s, the S&P 500 went essentially nowhere in real terms for an entire decade once stagflation took hold,” he said.
The price of West Texas Intermediate briefly surged toward $120 per barrel after the conflict began. Puckrin warned markets may face a “rude awakening” the longer the Strait of Hormuz — through which roughly 20% of global oil passes — remains closed or disrupted. Even if shipping lanes reopened immediately, damage to Gulf oil-producing infrastructure would take months to repair, he added.
Energy is a core input across the economy; higher energy costs tend to push up prices for other goods and services. That elevated inflation would likely prevent the Federal Reserve from cutting rates — and could force it to raise them — dashing hopes that easier policy and liquidity would spur risk assets such as cryptocurrencies.
The Federal Open Market Committee left the federal funds rate unchanged in March at 3.5%–3.75%. Odds of a rate cut by the April meeting have effectively vanished, and the CME Group’s FedWatch tool shows a roughly 12% chance of a rate increase next month. Federal Reserve Chair Jerome Powell said higher energy prices will push overall inflation and that it is “too soon” to precisely assess the path and severity of economic effects from the war and energy infrastructure disruptions.
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