“I am considering a massive attack. Bigger than ever before,” Donald Trump said Thursday, in what Axios described as a “brief interview” on the war with Iran.

By the time you read this, Trump might’ve called off the attack (he’s mercurial, that one), but his threats made a bad situation worse for markets.

Brent soared on Thursday after the Houthis, the last Iranian proxy standing, fired on a pair of Saudi oil tankers in the Red Sea. Thursday’s sharp rally kept Brent on track for a third consecutive weekly advance.

As the simple figure shows, crude’s been a one-way trade since the ceasefire collapsed.

Suffice to say transactionalism’s no substitute for comprehensive dialogue when it comes to solving serious problems. Who knew, right?

Needless to say, this is suboptimal for Kevin Warsh who, whatever he says publicly, is beholden to Trump. Not as beholden, perhaps, as a lot of other people in Washington. But hardly independent, not even in the “wink-wink” sense most Fed chairs are(n’t) “independent.”

The US short-end traded heavy. Again. At 4.36%, two-year yields were nearly 75bps above EFFR, the most since November of 2022.

That — the chart — isn’t a good look for the Fed, notwithstanding favorable inflation readouts for June. Those prints (the June CPI and PPI reports) are old news now. Twos are saying the Fed’s behind the curve.

“Iran escalation headlines are feeding already yucky vibes across markets, as energy is running amok and feeding that vicious rate vol impulse, setting the table for a messy set of circumstances for the Fed into next week’s meeting,” Nomura’s Charlie McElligott said.

As the chart below shows, STIRs are a one-way ticket just like, and because of, crude.

Following the Houthi attacks, traders were close to fully pricing two hikes for 2026.

Personally, I can’t imagine Warsh hiking next week, no matter what happens in the Gulf (or the Red Sea) between now and Wednesday. But as McElligott went on to note, markets might be trying to corner him.

“I think the rates market is actually attempting to ‘anticipate the anticipators,'” he wrote, in the same note mentioned above. In “throwing a mini-tantrum,” rates are “stating that a hawkish hold is not good enough, putting the Fed at risk” of finding itself behind the curve.

This is “especially” dicey, Charlie went on, “against the background of latent concerns [around] Fed independence.” Simply put: A Kevin who doesn’t hike when the market’s screaming at him to hike is a Kevin who reinforces the idea that the Fed chair’s beholden to the Oval Office.

Speaking of the Oval Office, Trump told Axios he’ll make a decision soon on whether to launch his “massive attack.” “We are all set for it,” he said. “And Israel would join in two minutes if I ask them to.”