FXTRADING Financial Focus (Asia-Pacific 06/25)Easing Tensions Support Inflation Outlook

As tensions in the Middle East continue to ease, the U.S. government has become increasingly optimistic about the inflation outlook. U.S. Treasury Secretary Scott Bessent stated that the most stressful phase for energy markets may have passed. With the Iran-related conflict cooling, international crude oil and gasoline prices are expected to gradually decline, helping reduce cost pressures on businesses and consumers and supporting a moderation in inflation.

On monetary policy, Bessent expressed confidence in new Federal Reserve Chair Kevin Warsh. He believes the Fed is capable of balancing inflation control with economic growth. Addressing concerns about political influence on monetary policy, Bessent emphasized that the Federal Reserve will remain independent and that future policy decisions will be driven primarily by economic and inflation data.

Warsh chaired his first interest rate meeting as Fed Chair last week. Although markets had previously anticipated rate cuts, the Federal Reserve ultimately chose to leave interest rates unchanged in response to still-elevated inflation. As price pressures have recently intensified again, an increasing number of policymakers are shifting their focus back toward inflation risks rather than the timing of policy easing.

Markets generally expect the upcoming core inflation data to remain well above the Federal Reserves long-term target of 2%. While energy prices may have room to decline, services, housing, and various living costs continue to show strong upward momentum, indicating that the path back to the inflation target remains challenging.

At the same time, the United States 60-day temporary authorization for Iranian oil exports is widely viewed as an important measure to stabilize global energy supplies. As some Iranian crude oil returns to international markets, supply constraints have eased, and part of the geopolitical risk premium previously built into energy prices is gradually fading.

However, differing views on Middle East policy remain within the United States. Recent Senate discussions and voting related to ending actions involving Iran highlight ongoing concerns among some lawmakers and members of the public regarding the economic and fiscal costs associated with prolonged geopolitical conflicts.

Looking ahead, if U.S.-Iran negotiations continue to make progress, global energy supply stability could improve further, helping to ease inflationary pressures. From FXTRADING‘s perspective, markets are gradually transitioning from a phase dominated by geopolitical developments back to one driven by economic fundamentals. Over the coming period, energy price movements, the trajectory of U.S. core inflation, and the Federal Reserve’s assessment of long-term inflation risks will remain key drivers of global economic expectations. If energy markets remain stable, U.S. inflation may continue to moderate gradually. However, persistent service-sector inflation and resilient labor market conditions could limit the pace of disinflation, suggesting that major central banks are likely to maintain a cautious policy stance in the near term.