Donald Trump appears to be running a deliberate playbook: drive oil prices down ahead of Federal Reserve meetings to give the new Fed chair, Kevin Warsh, political and economic cover to avoid raising rates. With the Fed's first meeting under Warsh concluding tomorrow, the timing of a Wall Street Journal exclusive on the Iran nuclear deal — published just as the meeting began — looks anything but coincidental.
The Iran Oil Deal and Its Market Impact
The Wall Street Journal reported that the emerging Trump-Iran nuclear agreement includes immediate sanctions waivers on Iranian oil exports, effective upon signing. That means no phased approach, no conditional timelines — Iranian crude flows back into global markets the moment ink hits paper. Provisions also reportedly cover banking infrastructure, transportation, and insurance guarantees to ensure oil moves without delay.
The effect on prices has been immediate. Brent crude has fallen below $80 per barrel, and WTI sits around $76.
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Chart showing Brent crude below $80 and WTI around $76
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A longer-term target of $65–$70 by Q1 2027 is already looking achievable ahead of schedule. Trump has repeatedly telegraphed that oil would drop like a rock once a deal was signed, and the market is now pricing that in. The strategic read here is straightforward: cheaper oil reduces inflationary pressure, which reduces the urgency for rate hikes, which keeps the economic expansion alive.
What Markets Are Currently Pricing In for Rates
Despite falling oil prices, interest rate futures tell a hawkish story. As of today, markets assign roughly a 58.6% probability to at least one rate hike before year-end, and about a 16% chance of two hikes. Looking out to mid-2027, only about 2.3% of market probability is assigned to a rate cut. The market is not pricing in Fed easing — it is pricing in tightening.
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Fed funds futures probability table showing rate hike expectations through 2027
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This is precisely the narrative Trump's oil strategy is designed to disrupt. By pushing oil lower just before the Fed meeting, the White House is providing Warsh with data points that support a transitory inflation argument — the same framework that allows a hold today and opens the door to cuts later.
Kevin Warsh: What to Expect From His First Press Conference
The rate decision itself will almost certainly be a hold. The more important signal will come from Warsh's press conference and the Summary of Economic Projections (SEP). Warsh is generally considered a deflation hawk — someone who believes structural forces, particularly in technology, will suppress prices over the medium term. His likely message: inflationary pressures seen so far are one-time events, and AI-driven deflation is coming.
There is real evidence for the AI deflation thesis. The cost of running frontier AI models has collapsed — one major model now costs approximately one-twentieth of what a comparable model cost just a year ago, and a leading Chinese open-source model costs one-twentieth of that. As inference costs fall, deflationary pressure spreads across services that use these models. Warsh is expected to lean on this argument to justify patience on rates.
However, Warsh carries a meaningful risk that his predecessor did not. He is unlikely to run the money printer aggressively in a downturn. If a recession arrives, the path through it could be longer and more painful than markets accustomed to rapid Fed intervention are prepared for.
Investor Positioning: Very Little Cash Left on the Sidelines
Bank of America data on private client cash holdings as a percentage of assets under management shows cash allocations near their lowest levels since at least 2006 — briefly matching the trough seen around the 2018 bond market crisis.
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Bank of America private client cash holdings as percentage of AUM, 2006 to present
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Private clients currently hold 65.5% of their Bank of America assets in equities and 17.4% in bonds. That leaves very little dry powder if conditions deteriorate. Notably, this figure excludes real estate, so actual cash allocations across total net worth are likely even lower. The picture is one of a fully invested market with limited cushion.
Gold and crypto are both seeing outflows, consistent with a rotation into equities and away from inflation hedges. Warsh's appointment may mark a prolonged headwind for gold — the metal topped almost immediately after Warsh was announced as the Fed nominee. If his tenure is characterized by credible inflation-fighting and eventual deflation, gold's bull case weakens substantially for the next several years.
Tech flows remain elevated, supported by strong earnings, but stocks like Google have struggled to break and hold above the $400 level, suggesting some near-term resistance as institutional money reassesses the rate outlook.
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Google stock chart showing repeated rejection at $374 and $404 resistance levels
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The Bigger Picture
The thread connecting all of this is a White House that understands rate policy is a key variable in sustaining an economic expansion, and that is actively using foreign policy as a lever to influence it. Whether or not you call that coordination or coincidence, the sequencing — Iran deal headlines timed to the opening of a Fed meeting — is difficult to dismiss as accidental. Warsh now has falling oil prices, a dovish long-term deflation thesis, and political tailwinds all pointing in the same direction. The question is whether the data cooperates long enough for markets to start pricing cuts back in. Until they do, the rally has a ceiling.
