Original title: Wall Street's Inflation Alarm From Iran—What It Means for Crypto
Original author: Oihyun Kim, BeInCrypto
Original translation by: Saoirse, Foresight News
TL;DR
- Oil prices surged as tensions in Iran reignited market concerns about inflation, and U.S. Treasury yields saw their biggest one-day gain since October.
- Yellen warned that the Fed is now "more inclined to hold back," while Dimon called inflation a potential "party skunk."
- Bitcoin rose 5.7% driven by safe-haven inflows, but persistently high interest rates may pose a challenge to the bullish outlook for cryptocurrencies in the future.
Wall Street is sounding the inflation alarm. From the bond market to corporate executives, a growing number of signals suggest that the US and Israeli strikes against Iran could reignite price pressures that the Federal Reserve has been trying to suppress for years—a move that would have a significant impact on interest rates, risk assets, and the cryptocurrency market.
The question now is whether the oil shock triggered by the situation in Iran will become the trigger to disrupt the interest rate cut timetable that Wall Street has been looking forward to.
The bond market reacted first.
The Treasury market quickly priced in this threat. On Monday, the yield on the 10-year Treasury note jumped 10 basis points to 4.03%, marking its biggest one-day gain since October of last year. Meanwhile, oil tanker traffic in the Strait of Hormuz was almost completely disrupted, and oil prices surged by more than 6%.
Expectations for interest rate cuts have cooled significantly. Traders now widely expect the Federal Reserve to cut rates for the first time no earlier than September, and the expectation of a third rate cut in 2026 has almost disappeared. Just a few weeks ago, the market was quite optimistic about the easing cycle.
The bond market is sending a clear signal: inflation risks are rising again, and the Federal Reserve may be hesitant to act.
Yellen and Dimon issue warnings
On Monday, two of the most influential figures in the U.S. financial world further reinforced this signal.
Former Treasury Secretary Janet Yellen warned that the conflict with Iran has made the Federal Reserve "more inclined to hold off," making policymakers even less willing to cut interest rates. Speaking at the S&P Global TPM26 shipping conference, she said that the current U.S. inflation rate is around 3%, a full percentage point higher than the Fed's 2% target, with the Trump-era tariff policies contributing about 0.5 percentage points.
Her deeper concern lies on a psychological level. She stated that the Federal Reserve must be wary of the market developing the perception that "inflation has indeed fallen to 3%, but the Fed doesn't genuinely want to push it back to 2%." Once this expectation solidifies, it could allow high inflation to take root in the long term—the last thing central banks want to see.
JPMorgan Chase CEO Jamie Dimon expressed a similar view, warning that inflation could become the "skunk at the party" of the US economy, ruining the overall atmosphere. He acknowledged that short-term conflicts have a limited impact on inflation, but the situation would be entirely different if the conflict were prolonged.
What does inflation mean for various markets?
If inflation is more stubborn than expected, its effects will spread to all asset classes.
For the stock market, prolonged high interest rates will compress valuations, particularly impacting growth and technology stocks that are sensitive to discount rates. Monday's market action already foreshadowed this: the S&P 500 fell more than 1% intraday before barely closing flat; defensive sectors such as energy and defense strengthened, while airline stocks plummeted.
For cryptocurrencies, the situation is more complicated.
On Monday, even with a bond sell-off, Bitcoin rose 5.7% to $69,424. Many interpreted this as a safe-haven inflow of funds into hard assets amid geopolitical uncertainty and inflation concerns. Gold's break above $5,300 also supports this logic.
However, persistently high interest rates will challenge the upward momentum of cryptocurrencies. The 2022 bear market demonstrated that digital assets undergo dramatic revaluation when liquidity tightens and the Federal Reserve adopts a hawkish stance. If expectations of interest rate cuts continue to fade, risk appetite in the crypto market may face pressure in the coming months.
Not everyone is bearish.
Of course, Wall Street has not reached a consensus on the "doomsday scenario".
Morgan Stanley strategists, led by Mike Wilson, stated that as long as oil prices do not continue to surge significantly, the Middle East conflict is unlikely to undermine their optimistic outlook on US stocks. JPMorgan's equity team, on the other hand, views the escalation of the conflict as a potential buying opportunity, believing the fundamentals remain positive.
Senior strategist Louis Navellier is more optimistic, predicting that once a pro-Western leadership emerges in Iran and crude oil exports resume, military action will eventually "eliminate major uncertainty" and trigger a rebound.
The Atlantic Council also took a cautious approach, noting that global energy infrastructure remained intact, supply fundamentals were healthy before the conflict, and the real variable was the duration of the conflict, not the strike itself.
Key question: How long will it last?
Ultimately, all predictions point to the same variable: how long the Strait of Hormuz will be effectively blocked.
If the issue is resolved within a few days, the impact of inflation will most likely be just a temporary spike in energy prices—painful but manageable.
However, if the disruption lasts for several weeks, it could combine with the summer gasoline season, persistent core inflation, and price pressures from tariffs to create a "combination of pressures," forcing the Federal Reserve to maintain a tight monetary policy for an extended period until 2026.
For crypto investors, this means that geopolitical agendas are just as important as on-chain metrics. Bitcoin may rise today due to safe-haven inflows, but if Yellen and Dimon's assessment of the inflation path is correct, the crypto market may face a more difficult road before it improves.
