Trump Confirms Major Hormuz Strikes; Oil Slips as Fiscal and Chip-Tariff Signals Pile Up

Oil’s response was the first market signal. Crude prices slipped on September 2 even as investors weighed uncertainty over U.S.-Iran strikes, suggesting the market is not pricing an immediate loss of supply. The decline came despite the confirmed U.S. strikes near Hormuz, leaving the geopolitical supply premium alive but contained. The reaction limits energy-sector upside and, if sustained, lowers input-cost pressure that could otherwise feed services inflation and narrow the broader equity bid.

Fed’s Williams kept the inflation channel front and center, saying tariffs and the Middle East war are big drivers of inflation remaining over target. The remark ties the strike confirmation and trade policy directly to the Federal Reserve’s reaction function, where energy and tariff shocks are already cited as reasons inflation remains over target.

US Treasury Secretary Bessent added a fiscal complication, saying the budget gap rose this year because of $70 billion in tariff refunds. The disclosure creates long-end yield pressure and reduces fiscal room for stimulus, complicating any lower-rate path through Treasury supply and fiscal risk at a time when rate expectations are firming.

US Commerce Secretary Lutnick gave chip tariffs a concrete policy purpose, saying they are aimed at boosting U.S. chip output. That reinforces domestic semiconductor reshoring, while raising input-cost and trade-retaliation questions for downstream technology and hardware. The impulse could support domestic chip investment, but the cost pressure extends into consumer and industrial technology supply chains.

The rates backdrop firmed alongside the headlines. A month-ahead currency note said the dollar fell 0.4% in August, a second consecutive monthly decline, with July’s drop driven by joint yen-buying intervention and August’s drop tied to the Treasury’s bond buyback announcement. The note added that Fed Chair Warsh’s Jackson Hole speech lifted rate-hike expectations, limiting the dollar’s decline.

Attention now shifts to the September policy calendar. The note said the FOMC meeting is the key central bank event, with the probability of a Fed hike above 60%, and the nonfarm payrolls and CPI reports are the key inputs. The RBNZ and Bank of Canada were first on September 2, the ECB follows September 10, the BoE meets the day after the Fed, and the BoJ meets September 18, with markets nearly fully pricing hikes from the RBNZ, ECB and BoJ.