Traders may be underestimating how large and how long the economic fallout from the Middle East conflict could be, says Nic Puckrin, founder of the Coin Bureau. He warned that Wall Street’s so‑called ‘TACO’ trade — the assumption that ‘Trump always chickens out’ and the U.S. will de‑escalate quickly — could prove dangerously optimistic, noting that ‘Trump is not in sole control of the situation’ and there are no easy or fast exits from the war.
Puckrin estimates that if oil remains above $100 per barrel, U.S. economic growth will slow and Personal Consumption Expenditures (PCE) inflation could rise by as much as one percentage point. That combination — weaker growth and higher inflation — is the definition of stagflation. ‘If oil stays above $100 throughout Q2 and into Q3, stagflation becomes a real problem for the Fed,’ he said, noting historical precedent when the S&P 500 produced essentially no real gains for a decade once 1970s stagflation took hold.
West Texas Intermediate briefly approached $120 per barrel after the conflict began. Puckrin cautioned that markets face a ‘rude awakening’ if the Strait of Hormuz, the route for roughly 20% of global oil shipments, remains closed or disrupted. Even a rapid reopening of shipping lanes would not immediately restore supply if Gulf production infrastructure has been damaged; repairs could take months.
Because energy is a core input across the economy, sustained higher oil prices tend to push up costs for many goods and services. That elevated inflation would likely constrain the Federal Reserve’s ability to cut rates and could even force it to raise them, undermining hopes that easier policy would revive risk assets such as cryptocurrencies.
The Federal Open Market Committee left the federal funds rate unchanged in March at 3.5%–3.75%. Market odds of a rate cut by the April meeting have largely evaporated, and the CME Group’s FedWatch tool shows roughly a 12% chance of a rate increase next month. Federal Reserve Chair Jerome Powell has warned that higher energy prices will push overall inflation and said it is ‘too soon’ to precisely gauge the path and severity of the economic effects from the war and related energy‑infrastructure disruptions.