Trump vows 'powerful strike' as US-Iran clashes resume; hawkish Fed chair adds to market pressure

Oil prices jump, rate-hike fears grow after Jackson Hole remarks

Downtown Tehran, Iran [AP]
Downtown Tehran, Iran [AP]

All three major US stock indexes fell Monday as the United States and Iran resumed hostilities for the first time in about a month, reigniting geopolitical tensions across the Middle East.

Surging oil prices stoked inflation fears, pushing interest rates higher, while hawkish remarks from Federal Reserve Chair Kevin Warsh amplified concerns about a September rate hike and broadly dampened investor sentiment.

The Dow Jones Industrial Average closed Monday down 374.09 points, or 0.70 percent, at 53,185.90. The S&P 500 fell 25.62 points, or 0.33 percent, to 7,686.14, and the NASDAQ Composite dropped 31.53 points, or 0.12 percent, to 26,370.89.

The US military struck Iran's Larak Island in the Strait of Hormuz on Monday, targeting two Islamic Revolutionary Guard Corps rocket launchers used for mine-laying. Iran immediately retaliated, launching missile and drone strikes against US military bases in Jordan and the UAE.

The US strike was the first against Iran since Aug. 29. President Donald Trump warned of severe retaliation against Iran for attacking US bases, vowing to hit the country "powerfully," Fox News reported.

International oil prices surged on the renewed Middle East tensions. West Texas Intermediate crude for October delivery settled at $85.76 per barrel, up $2.36, or 2.83 percent. Brent crude closed at $90.49 per barrel, a gain of $2.39, or 2.71 percent.

Average US gasoline prices continued their climb. According to the Associated Press and the American Automobile Association, the national average stood at $4.08 per gallon Monday — the first time in history that the US national average has remained above $4 per gallon for an entire month of August.

Warsh's hawkish comments added further downward pressure on equities. Speaking Friday at the Jackson Hole economic policy symposium — his first since taking office — he described inflation indicators as "increasingly concerning" and said additional action would be needed if price growth did not slow toward the target at a sufficient pace. Markets responded by pricing in a growing likelihood of a September rate hike.

According to CME FedWatch, federal funds rate futures now reflect a 66.4 percent probability that the FOMC will raise the benchmark interest rate by 25 basis points at its September meeting, lifting it from the current range of 3.50 to 3.75 percent to 3.75 to 4.00 percent.

A selloff in US Treasuries pushed long-term yields higher. The 10-year Treasury yield briefly topped 4.75 percent during trading Monday, its highest level in 19 months since January of last year. The 30-year yield climbed to around 5.26 percent before paring some of its gains.


th5@heraldcorp.com