US Treasury Secretary Scott Bessent said on Tuesday that he is “quite confident” US core inflation will continue to fall despite the Iran war. He also said he is pressing the Federal Reserve to cut interest rates.
Bessent said Fed policymakers want to review economic developments linked to the Middle East conflict before deciding on rates. He said the Fed could observe conditions before cutting, but said rates will need to be cut.
He said the Fed should wait to cut rates until Kevin Warsh is in place. He said Donald Trump’s nominee, Kevin Warsh, should lead the next easing cycle and added, “We want Kevin Warsh in as soon as possible.”
Bessent said the US has put in 10% Section 122 tariffs. He said the President has not chosen to raise that rate to 15% at this time.
He also said he wants a housing bill to be passed. He repeated his call for Kevin Warsh to be appointed Fed Chair as soon as possible.
We see strong signals from the Treasury that interest rate cuts are necessary, even with the ongoing conflict in Iran. With core inflation trending down to 3.1% in March 2026 from last year’s highs, traders should consider positions that benefit from lower rates ahead. This could involve buying December SOFR futures to lock in a lower implied rate.
The timing for these cuts is the big question, as the Fed may wait to see how the conflict impacts the economy. This uncertainty, combined with the push to install a new Fed Chair, suggests market volatility will increase in the coming weeks. We believe buying VIX call options or establishing long straddles on the SPX could be a prudent way to trade this expected chop.
Historically, the start of an easing cycle has been bullish for equities, especially growth-oriented sectors sensitive to interest rates. Looking back at the pivot in late 2023, we saw tech stocks surge on the mere expectation of cuts. Therefore, we are looking at call spreads on the Nasdaq 100 ETF (QQQ) and homebuilder ETFs, given the stated desire to also pass a housing bill.
A dovish Fed pivot will likely put downward pressure on the US dollar, making long positions in EUR/USD futures an attractive play. However, we cannot ignore the geopolitical risks from Iran, as Brent crude has already climbed to over $92 a barrel this month. Buying out-of-the-money call options on crude oil futures could serve as a valuable hedge against the official view that inflation will continue to fall.
