Kevin Hassett, Director of the White House National Economic Council, stated in a weekend media interview that the Trump administration anticipates a significant drop in oil prices should a geopolitical agreement to reopen critical shipping routes be finalized. He suggested that lower energy costs could substantially ease inflationary pressures, ultimately creating more positive room for the Federal Reserve, under Chair Kevin Warsh's leadership, to implement interest rate cuts.
In an interview with Fox News, Hassett noted that the global oil trading market is already pricing in a potential decline in crude prices. Buyers are becoming increasingly hesitant to purchase oil at current spot prices, he said, as they expect a swift increase in supply following a potential U.S.-Iran peace deal. Should energy prices fall, Hassett believes the Fed would have ample room to cut rates.
He pointed to potential substantial production increases from Saudi Arabia and the United Arab Emirates, coupled with sustained high U.S. shale oil output, as factors that could quickly stabilize the market. "We've already seen some signs that people are a little bit cautious about buying oil in the spot market right now because they expect the price to come down pretty sharply soon," Hassett remarked. "That's a very, very good sign."
As a leading figure in the Trump administration's economic policy "brain trust," Hassett's latest comments are significant for the trajectory of the U.S. stock market bull run, which President Trump closely monitors. They provide the market with a potential disinflation reversal narrative: falling oil prices leading to cooling inflation, declining U.S. Treasury yields, and the Fed regaining room to cut interest rates.
If a U.S.-Iran agreement facilitates the phased reopening of the Strait of Hormuz, easing pressure on oil and gasoline prices, sectors like airlines, commercial transport, non-essential consumer goods, industrials, small-caps, and high-valuation growth stocks would be the most direct beneficiaries in the equity market. These sectors have been most susceptible to pressure from the combined rise in oil prices and long-term Treasury yields.
In early Asian trading on Monday, signals regarding a potential U.S.-Iran deal and strait reopening caused the international oil benchmark, Brent crude futures, to drop by approximately $5 per barrel at one point, retreating sharply to around $98.76.
**Investors Continue to Monitor Oil, Inflation, and Fed Policy Timing**
Hassett's recent comments are crucial for investors as they connect three major market drivers: energy prices, inflation expectations, and the interest rate outlook.
While the U.S. stock market's super bull run since 2023, fueled by AI investment enthusiasm and strong earnings from AI-related companies, continues robustly, higher oil prices since the Iran war in late February have sparked concerns that inflation could reaccelerate. This could significantly delay Fed easing or even push the central bank back onto a rate-hiking path.
During the interview, Hassett argued that while energy prices have been a persistent concern for U.S. consumers, broader inflationary pressures remain contained. He cited falling grocery and drug prices, deregulation efforts, and sustained productivity gains linked to artificial intelligence as forces potentially offsetting energy-driven inflation trends. "As long as we get energy prices coming back down, you could actually see negative inflation numbers because energy prices are about to come down fast," Hassett stated.
The senior Trump administration official also dismissed predictions of a major oil price spike if shipping disruptions worsen, noting that crude prices remain below some of the most extreme forecasts. West Texas Intermediate (WTI) crude futures settled at $97 per barrel on Friday, up 59% over the past 12 months. "At first, the doomsayers were saying if we close the Strait of Hormuz, oil will be well above $150," Hassett said. "So now we're here, you know, still a little bit under $100."
**Fed Monetary Policy Outlook Remains Uncertain**
Hassett discussed newly appointed Fed Chair Kevin Warsh, describing him as a highly experienced policymaker capable of navigating difficult economic conditions. While emphasizing the Fed's independence, Hassett suggested that falling energy prices and other disinflationary trends could ultimately make lower Fed rates justifiable.
"There are a lot of things putting downward pressure on prices," Hassett said, mentioning AI-driven productivity gains and a "huge and unprecedented AI capital spending boom." He added that once energy prices decline rapidly, "the Fed is going to have a lot of room to do the right thing at lower interest rates."
These remarks come as the bond market grows increasingly sensitive to inflation risks associated with rising gasoline prices with the North American summer driving season approaching. Following recent warnings from some policymakers that persistent inflation might even necessitate tighter Fed policy, investors have been reassessing how quickly the Fed under Trump-nominated Chair Warsh might pivot to a monetary tightening path.
Amid the largest surge in inflation data since 2023 triggered by the Middle East Iran war, global bond market traders are actively pricing in a near-certainty that the Fed will begin raising rates before December. This is reflected in traders nearly 100% pricing in a 25-basis-point Fed hike by December. This marks a sharp reversal from just three months ago when markets were betting on deeper rate cuts under a future Warsh-led Fed.
This shift reflects the impact of geopolitical turmoil, U.S. economic resilience, and the monetary policy tightening tone brought by the AI investment boom driving stocks higher.
**Hassett Dismisses Consumer Confidence Concerns, Bets on Energy Price Relief and Return of Rate-Cut Trades**
Hassett also criticized the University of Michigan's U.S. consumer confidence data, suggesting partisan responses distort the index's ultimate reliability. He contrasted this with The Conference Board's consumer confidence data, stating the latter better reflects U.S. non-farm payroll growth and income trends.
Hassett pointed to stronger retail sales and tracking indicating a Q2 GDP growth trajectory exceeding 4% as evidence of resilient consumer spending, crucial for the U.S. economy, despite concerns over gasoline prices and inflation.
Hassett's latest comments essentially provide the market with a disinflation reversal script: falling oil prices leading to cooling inflation, declining U.S. Treasury yields, and the Fed regaining room to cut rates. Hassett believes a deal would bring more oil supply and significantly lower gasoline prices.
Over the weekend, media reports suggested the U.S. and Iran were close to a deal that would extend the existing ceasefire by 60 days, during which the Strait of Hormuz would reopen, and Iran would be allowed to sell its oil. Consequently, during Monday's early Asian trading, crude prices fell, and U.S. Treasury futures edged higher. The global crude benchmark Brent fell as much as 5.2% to $98.12 per barrel, while WTI crude approached $92.
However, recent media reports indicate Trump still emphasizes he will not "rush" into a deal, and fully restoring energy flows could face constraints related to implementation, mine clearance, insurance, and security guarantees.
For the U.S. stock market, what Hassett truly signals is a marginal improvement in policy mix expectations: the White House hopes to package falling energy prices, AI productivity gains, deregulation, and a capital spending boom into a "soft landing" narrative of "controlled inflation with still-strong growth." If this combination materializes, the U.S. bull market could expand beyond reliance solely on the "Mag 7" (the seven mega-cap tech stocks) and AI-driven earnings to include consumer, cyclical, transport, and rate-sensitive sectors. As market breadth improves, the S&P 500's bull market structure would become healthier.
Nevertheless, the bond market is likely to remain cautious. Strategists have previously warned that even if the Iran war ends, long-term yields may not decline rapidly, as real yields, the fiscal deficit, AI capital expenditure financing, massive Treasury supply, and a higher neutral rate could keep U.S. bond yields elevated.
Therefore, Hassett's notion that "falling oil prices open room for rate cuts" is a positive option for U.S. stocks, not a definitive conclusion. It requires sustained declines in oil prices, simultaneous cooling in PCE inflation and consumer inflation expectations, a recovery in consumer confidence, a reduction in fiscal spending, and confirmation from the Fed that further tightening is unnecessary.
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