Ongoing Talks Fail to Mask Conflict Risks as Market Uncertainty Rises

Summary:

The U.S. and Iran may hold another round of face-to-face talks; Donald Trump says Jerome Powell could be dismissed if he does not step down in May...

Key Highlights

1. The U.S. and Iran may hold another face-to-face meeting, with discussions still ongoing

2. U.S. Democrats launch impeachment proceedings against Defense Secretary Pete Hegseth

3. Fed Beige Book: Iran war puts U.S. businesses in wait-and-see mode

4. Trump: Powell will be dismissed if he does not step down in May

5. Alberto Musalem: Rates may need to remain unchanged for some time

6. Sustained oil prices at $120 would weigh more heavily on consumption

7. Prolonged Iran conflict could trigger a long-term energy supply crisis

Detailed Developments

U.S. and Iran May Resume Face-to-Face Talks

White House Press Secretary Karoline Leavitt said on the 15th that discussions are ongoing regarding a potential new round of direct talks between the United States and Iran, with Washington expressing optimism about reaching an agreement. However, nothing is certain until officially announced by the White House.

The next round of talks is likely to take place again in Islamabad, Pakistan, which has played a key mediating role throughout the process.

Leavitt also denied reports that the U.S. has formally requested an extension of the ceasefire. She stated that both sides are engaged in ongoing and productive dialogue.

Regarding the duration of the U.S. blockade on Iranian ports, she declined to provide a timeline, emphasizing that the blockade is fully enforced and applies to all vessels entering or leaving Iranian ports in both the Persian Gulf and the Gulf of Oman.

U.S. Democrats Move to Impeach Defense Secretary

Democratic lawmakers in the U.S. House of Representatives introduced six articles of impeachment against Defense Secretary Pete Hegseth, accusing him of war crimes, abuse of power, and reckless handling of sensitive information.

The impeachment effort is led by Representative Yassamin Ansari of Arizona and supported by multiple Democratic lawmakers.

The charges include launching an unauthorized war against Iran, endangering U.S. troops, violating the laws of armed conflict, targeting civilians, mishandling classified military information, obstructing congressional oversight, politicizing the military, and damaging the reputation of the United States and its armed forces.

U.S. Democrats Move to Impeach Defense Secretary

The impeachment effort is led by Representative Yassamin Ansari of Arizona and supported by multiple Democratic lawmakers.

Trump Threatens to Dismiss Powell

Trump said in a media interview on Wednesday that if Fed Chair Powell does not step down after his term ends on May 15, he will be dismissed.

Although Trump has long considered removing Powell, he refrained from doing so previously to avoid controversy.

While Powell’s term as Fed Chair ends in May, his term as a Board Governor runs until January 2028.

Powell stated last month that he has no intention of leaving the Fed before a Justice Department investigation is concluded transparently. He also noted that if a new chair is not confirmed by the Senate in time, he would serve as acting chair until confirmation is completed.

Musalem: Rates Likely to Stay Unchanged for Now

Fed official Musalem said that elevated oil prices could push core inflation nearly one percentage point above the Fed’s 2% target for the remainder of the year, suggesting that interest rates may need to remain unchanged for some time.

Oil price increases are likely to pass through to core inflation, with key inflation metrics expected to hover around 3% by year-end, with upside risks.

The Fed may maintain its policy rate at 3.50%–3.75% while closely monitoring incoming data on inflation, employment, and growth. Many policymakers share this view.

While the impact of last year’s tariff hikes may fade this quarter and housing inflation is easing, rising oil prices continue to sustain high inflation in services. If inflation accelerates and begins to lift expectations, further rate hikes remain possible.

Musalem also noted that the oil market has experienced its third negative supply shock in the past 12 months. Combined with higher tariffs and tighter immigration policies, risks to inflation and employment are rising, potentially weighing on economic growth, which he expects to slow to 1.5%–2% this year.

Oil at $120 Would Weigh Heavily on Consumption

Ongoing Middle East tensions and rising oil prices are weighing on Asian economies.

Morgan Stanley’s Asia chief economist Chetan Ahya noted that consumption had been gradually improving before geopolitical tensions escalated. However, higher energy prices are likely to reduce disposable income in the short term, though policy support and savings may provide some cushion.

If oil prices fall below $90 per barrel in the next 3–4 months, the industrial cycle could regain momentum, supporting investment, employment, and consumption.

However, if prices remain around $120, higher fuel costs will force consumers to adjust spending patterns, significantly weighing on consumption.

Prolonged Conflict Could Trigger Long-Term Energy Crisis

The European Union warned that if the Iran conflict persists, energy markets could face prolonged supply disruptions, forcing a reduction in fuel consumption.

With the Strait of Hormuz effectively blocked, global energy supply is under severe strain. While Europe has not yet faced shortages, soaring oil and gas prices are already causing stress, with some airports warning of potential jet fuel shortages within weeks.

The European Commission outlined two scenarios:

If a ceasefire holds and the U.S. lifts the blockade, oil and gas supplies could recover within months, with diesel and jet fuel prices easing by late summer. However, the global LNG market would remain tight until 2030 due to damage to Qatar’s infrastructure.

If tensions persist, energy markets could face long-term supply shocks and extreme price spikes, triggering cascading effects across supply chains. Continued disruptions could lead to demand destruction, making it difficult for Europe to rebuild gas inventories before winter, while localized jet fuel shortages may emerge.

Today’s Key Events to Watch

10:00 (UTC) China Q1 GDP

14:00 (UTC) UK Three-Month GDP (February)

20:35 (UTC) Speech by John Williams

21:00 (UTC) Remarks by Isabel Schnabel

21:15 (UTC) U.S. March Industrial Production (MoM)

23:15 (UTC) Speech by Olli Rehn

00:00 (UTC) Remarks by Joachim Nagel

00:00 (UTC) Speech by François Villeroy de Galhau

02:30 (UTC) Remarks by Bradley Hunt0

2:30 (UTC) Remarks by Isabel Schnabel

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