Rising Inflation Could Push Trump Toward De-Escalation With Iran: Standard Chartered

The British banking group Standard Chartered suggested that rising inflation pressures in the United States could prompt U.S. President Donald Trump to reduce tensions with Iran, particularly if higher oil prices begin to weigh on the American economy ahead of the U.S. midterm elections scheduled for November.

In a recent report, the bank outlined a base-case scenario with a 70% probability in which the current conflict lasts only a few weeks rather than several months. Analysts said that the weakening of Iran’s military capabilities could encourage Washington to avoid further escalation that might intensify inflationary pressures at home.

The report added that U.S. plans to provide military support and security guarantees for oil tankers passing through the Strait of Hormuz could help restore confidence in global shipping routes.

Such measures, the bank said, may reduce fears of a prolonged disruption to global energy supplies.

Standard Chartered also noted that advanced economies and China hold sufficient oil and gas reserves to meet demand for several months, suggesting that the long-term inflationary impact of the conflict could remain limited if tensions ease relatively quickly.

If inflation pressures decline, the report said the Federal Reserve may be able to resume interest-rate cuts during the second half of the year, particularly if policymakers seek to support a weakening labor market once tariff-related inflation effects begin to fade.

Markets are currently awaiting the release of the U.S. February employment report, with forecasts pointing to the creation of around 55,000 new jobs.

Despite the base-case outlook, Standard Chartered assigns a 30% probability to a more prolonged conflict lasting several months, which could trigger sustained increases in oil prices and a sharper rise in inflation expectations.

In such a scenario, the Federal Reserve may be forced to delay interest-rate cuts, keeping monetary policy tighter for longer.

Short-term inflation expectations have already begun to rise since the start of the conflict. The one-year U.S. inflation swap rate has increased by roughly 24 basis points to 2.75%, while longer-term inflation expectations have remained relatively stable.

Recent U.S. data also indicates renewed price pressures, with core producer price inflation rising to 3.6% year-on-year in January.

Investors are now closely watching next week’s U.S. consumer inflation data, where forecasts suggest core inflation could reach 0.3% on a monthly basis and 2.4% annually, figures that may play a crucial role in shaping the Federal Reserve’s policy path in the months ahead.