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Don’t just focus on the Middle East conflict! The final straw that puts an end to Trump’s dream of cutting interest rates may be El Niño

2026-07-29·newswire-us-stock-042543
Don’t just focus on the Middle East conflict! The final straw that puts an end to Trump’s dream of cutting interest rates may be El Niño.

U.S. President Trump’s dream of cutting interest rates, and the next major test facing new Federal Reserve Chairman Kevin Warsh may not be the oil and energy price issues caused by the conflict in the Middle East, but the weather - the El Niño phenomenon. This may prevent the United States from cutting interest rates until 2027.

El Niño is a global weather pattern that can bring powerful storms and severe droughts. Across the northern United States, it heralds unusually dry and warm weather, while states along the Gulf Coast and Southeast experience unusually wet weather. Meanwhile, California and the southwestern United States were hit by heavy rains and mudslides.

The 2026 El Niño is expected to be very strong, according to forecasters at the National Oceanic and Atmospheric Administration, who believe there is an 81% chance of a "very strong El Niño" from October to December, which would rank among the largest El Niño events since records began in 1950.

This year's weather conditions are likely to develop into a rarer and more intense "Super El Niño" phenomenon. The most recent super El Niño occurred in late 2015 and early 2016 and caused an estimated $3.9 trillion in losses to the global economy, although the impact in the United States was relatively minor.

This time, the United States may not be so lucky. The strengthening of El Niño coincides with an oil supply shock caused by disruptions in the Strait of Hormuz. The combination of the two could turn a temporary rise in energy prices into a broader inflation problem and put new Federal Reserve Chairman Kevin Warsh in a difficult position.

Warsh said in his latest congressional testimony that the Fed has "zero tolerance" for continued high inflation. He also distinguished between persistent inflation and one-time price increases caused by supply constraints. However, with the onset of El Niño, this distinction is about to be tested.

The United States will face a dilemma: it can neither increase oil production nor reopen waterways, nor can it increase crop production. As former Federal Reserve Chairman Jerome Powell said at a press conference in March, central bankers typically ignore temporary energy shocks when setting interest rates. This makes sense.

Higher interest rates can curb demand but do nothing to address the underlying supply shortage. Recurring supply shocks may eventually spread beyond the directly affected products. Businesses raise prices to maintain profit margins. Workers demanded higher wages in order to regain their lost purchasing power.

Consumers began to expect that inflation would remain high. Price increases that initially appear to be temporary may trickle down throughout the economy. This is why the Iran war and El Niño are relevant to monetary policy. El Niño does not produce the same weather everywhere.

It would alter rainfall and temperature patterns in key agricultural areas, increasing the likelihood of drought in some areas and excessive rainfall in others. Strong El Niño events can disrupt harvests, reduce crop yields and push up global food prices. They also affect energy markets.

Rising temperatures will increase electricity demand, while droughts will reduce hydropower generation and increase reliance on natural gas and other fuels. The analysis points out that while any single impact may be manageable, the danger lies in its ripple effects.

The war in Iran drives up oil prices; consumers pay more to fill up; businesses bear higher transportation costs; ultimately leading to higher overall inflation. Then, El Niño began to affect food supplies and electricity markets. Households that are just beginning to adjust to rising gas prices will face yet another increase in the cost of necessities.

This could cause what is supposed to be a temporary inflationary shock to last much longer than expected.

#Stocks #Fed #Bonds #Oil #Earnings

Full text

Don’t just focus on the Middle East conflict! The final straw that puts an end to Trump’s dream of cutting interest rates may be El Niño

U.S. President Trump’s dream of cutting interest rates, and the next major test facing new Federal Reserve Chairman Kevin Warsh may not be the oil and energy price issues caused by the conflict in the Middle East, but the weather - the El Niño phenomenon. This may prevent the United States from cutting interest rates until 2027. El Niño is a global weather pattern that can bring powerful storms and severe droughts. Across the northern United States, it heralds unusually dry and warm weather, while states along the Gulf Coast and Southeast experience unusually wet weather.

U.S. President Trump’s dream of cutting interest rates, and the next major test facing new Federal Reserve Chairman Kevin Warsh may not be the oil and energy price issues caused by the conflict in the Middle East, but the weather - the El Niño phenomenon. This may prevent the United States from cutting interest rates until 2027. El Niño is a global weather pattern that can bring powerful storms and severe droughts. Across the northern United States, it heralds unusually dry and warm weather, while states along the Gulf Coast and Southeast experience unusually wet weather. Meanwhile, California and the southwestern United States were hit by heavy rains and mudslides. The 2026 El Niño is expected to be very strong, according to forecasters at the National Oceanic and Atmospheric Administration, who believe there is an 81% chance of a "very strong El Niño" from October to December, which would rank among the largest El Niño events since records began in 1950. This year's weather conditions are likely to develop into a rarer and more intense "Super El Niño" phenomenon. The most recent super El Niño occurred in late 2015 and early 2016 and caused an estimated $3.9 trillion in losses to the global economy, although the impact in the United States was relatively minor. This time, the United States may not be so lucky. The strengthening of El Niño coincides with an oil supply shock caused by disruptions in the Strait of Hormuz. The combination of the two could turn a temporary rise in energy prices into a broader inflation problem and put new Federal Reserve Chairman Kevin Warsh in a difficult position. Warsh said in his latest congressional testimony that the Fed has "zero tolerance" for continued high inflation. He also distinguished between persistent inflation and one-time price increases caused by supply constraints. However, with the onset of El Niño, this distinction is about to be tested. The United States will face a dilemma: it can neither increase oil production nor reopen waterways, nor can it increase crop production. As former Federal Reserve Chairman Jerome Powell said at a press conference in March, central bankers typically ignore temporary energy shocks when setting interest rates. This makes sense. Higher interest rates can curb demand but do nothing to address the underlying supply shortage. Recurring supply shocks may eventually spread beyond the directly affected products. Businesses raise prices to maintain profit margins. Workers demanded higher wages in order to regain their lost purchasing power. Consumers began to expect that inflation would remain high. Price increases that initially appear to be temporary may trickle down throughout the economy. This is why the Iran war and El Niño are relevant to monetary policy. El Niño does not produce the same weather everywhere. It would alter rainfall and temperature patterns in key agricultural areas, increasing the likelihood of drought in some areas and excessive rainfall in others. Strong El Niño events can disrupt harvests, reduce crop yields and push up global food prices. They also affect energy markets. Rising temperatures will increase electricity demand, while droughts will reduce hydropower generation and increase reliance on natural gas and other fuels. The analysis points out that while any single impact may be manageable, the danger lies in its ripple effects. The war in Iran drives up oil prices; consumers pay more to fill up; businesses bear higher transportation costs; ultimately leading to higher overall inflation. Then, El Niño began to affect food supplies and electricity markets. Households that are just beginning to adjust to rising gas prices will face yet another increase in the cost of necessities. This could cause what is supposed to be a temporary inflationary shock to last much longer than expected.

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