Trump rules out Iran strikes before midterms, oil falls; NY Fed pins tariff inflation; bond markets ease

The price of oil is not just the cost of pumping it out of the ground. It includes a risk premium, the extra amount traders pay because something bad might happen to supply. When Trump appeared to rule out strikes on Iran before November, that specific risk shrank, and the premium unwound fast. This is the market doing what markets do: pricing in new information the moment it arrives. The mechanism is straightforward. Traders had priced in a chance of a strike disrupting Strait of Hormuz flows. That probability fell. So the expected future price of oil fell. Spot prices followed.

The precedent that comes to mind is the brief de-escalation in the Gulf in late 2019, when a similar verbal signal from Washington knocked several dollars off Brent within hours, only for prices to recover when the signal proved ambiguous. That parallel is useful but limited: in 2019 the underlying supply picture was looser, and OPEC had more spare capacity to absorb a shock. Today, with Brent having held above $101 for weeks and OPEC+ already running near its agreed ceiling, the market has less of a buffer. If Trump's statement is reversed after November, the premium could return faster than it left.

The NY Fed result is a near-perfect illustration of pass-through, the share of a cost increase that ends up in the final price paid by the consumer. A tariff is a tax on imports. The government collects it from the importer. The question is always who really pays: the importer, who absorbs it in lower profit, or the buyer, who pays a higher price. The NY Fed's finding of 2.9 percentage points across 67 categories suggests pass-through was close to complete in those goods. Importers did not absorb the cost. They passed it on.

What makes this politically and economically awkward is the timing. The Fed has been raising rates to bring inflation down, on the assumption that inflation is being driven by too much spending chasing too few goods. But if a large chunk of inflation is coming from tariffs, higher interest rates do not fix it. Rates slow borrowing and spending. They do not reduce the tax on imports. The Fed is, in effect, asking households to spend less in order to offset a price rise the government created. One month of data is not proof of a permanent shift, and the February 2026 figure may not capture how retailers have adjusted since. But the direction of the finding is hard to argue with.

A government bond yield is the annual return a buyer gets for lending money to a government. When investors sell bonds, the price falls and the yield rises, because the fixed interest payment is now a bigger share of the lower price. The ECB's repo facility works as a circuit-breaker: if banks are struggling to fund themselves because bond prices are falling, the ECB lends them cash and takes the bonds as temporary security. This keeps the banking system liquid, meaning banks can still meet their short-term obligations, even when the bond market is volatile. The facility does not stop yields from rising, but it stops a yield spike from becoming a bank funding crisis.

The debate worth watching is whether the ECB can keep using these tools while also raising rates to fight inflation. Raising rates pushes bond yields up, which is exactly the stress the repo facility is meant to cushion. The two policies pull in opposite directions. The ECB faced a version of this in 2022, when it launched its Transmission Protection Instrument to buy bonds in stressed markets while simultaneously hiking rates. That episode is the closest precedent, and it held, but only because the ECB acted quickly and credibly. Whether the same credibility holds today, with French debt at a new high and political uncertainty in several member states, is the question the minutes may not fully answer.