Rising Shipping Risks in the Strait of Hormuz Reinforce Fed Rate-Hike Expectations

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Summary:

St. Louis Fed President Musalem says further rate hikes may be needed over the next six to nine months; Iran may close new shipping routes in the Strait of Hormuz, heightening the risk of tanker attacks...

【Highlights】

1. Iranian President: Iran Will Not Walk Away from the Negotiating Table

2. US CBO Estimates Federal Budget Deficit at $2 Trillion for Fiscal Year 2026

3. Iran Says It Will Not Abandon Uranium Enrichment or Surrender Its Uranium Stockpile

4. Trump Rules Out Strikes on Iran Before the November 3 Midterm Elections

5. Musalem: Further Rate Hikes May Be Needed Over the Next Six to Nine Months

6. Iran May Close New Shipping Routes in the Strait of Hormuz, Heightening the Risk of Tanker Attacks

【Details】

Iranian President: Iran Will Not Walk Away from the Negotiating Table

Iranian President Masoud Pezeshkian reportedly said during a meeting with Russian President Vladimir Putin that Iran remained engaged in dialogue, but that the United States had launched attacks again each time negotiations took place.

Pezeshkian said Iran would not walk away from the negotiating table or abandon dialogue. Proposals exchanged between Iran and the United States through intermediaries would be compiled and organized once they had been finalized.

He accused the United States of attempting to impose its policies and positions on all countries and seeking to dominate other nations. He added that Washington was now also trying to impose its domestic policies on other countries.

US CBO Estimates Federal Budget Deficit at $2 Trillion for Fiscal Year 2026

On October 8 local time, the US Congressional Budget Office (CBO) estimated that the federal budget deficit would total $2 trillion in fiscal year 2026, up $218 billion from fiscal year 2025.

During fiscal year 2026, federal revenue is projected to increase by $169 billion, or 3%, while spending is expected to rise by approximately $386 billion, or 6%.

The increase in spending is expected to be driven primarily by net interest payments on federal debt, major benefit programs, defense and education. Revenue growth, meanwhile, is expected to be supported mainly by higher receipts from individual income taxes and payroll taxes.

Iran Says It Will Not Abandon Uranium Enrichment or Surrender Its Uranium Stockpile

According to Iranian state media, Mohammad Eslami, head of the Atomic Energy Organization of Iran, said on October 8 that Iran would not abandon uranium enrichment or hand over its existing uranium stockpile.

Eslami said enrichment was an indispensable part of the nuclear process and that Iran would never give it up under any circumstances. He questioned how a country could claim to possess a nuclear industry without even being able to carry out the initial stage of the process, adding that the nuclear industry was a driving force behind scientific and technological development.

Trump Rules Out Strikes on Iran Before the November 3 Midterm Elections

President Donald Trump said the United States would not attack Iran before the November 3 midterm elections, adding that discussions with Tehran had been productive.

However, he insisted that the blockade against Iran would remain fully in force. Trump also claimed that 22 million barrels of oil had passed through the Strait of Hormuz overnight, while no oil was entering or leaving Iran.

He reiterated that the United States would not allow Iran to acquire nuclear weapons.

Musalem: Further Rate Hikes May Be Needed Over the Next Six to Nine Months

St. Louis Fed President Alberto Musalem said in remarks on Thursday that inflation remained the main problem facing the US economy. However, with economic growth strong and the labor market stable, the Federal Reserve might be able to bring inflation down without significantly harming employment.

To bring inflation back to target within a reasonable timeframe, monetary policy might need to be tightened further over the next six to nine months. Musalem said he remained open to a rate hike at the October meeting but had not made a prediction about the outcome.

Despite a significant rise in Treasury yields, financial conditions remained accommodative and continued to support economic growth.

Musalem said higher yields did not necessarily mean investors had lost confidence in the Federal Reserve. Instead, they reflected market expectations of higher real interest rates and increased competition for capital in a strong economic environment.

Iran May Close New Shipping Routes in the Strait of Hormuz, Heightening the Risk of Tanker Attacks

Sources said Iran had issued a new warning that it would close shipping routes operating without its authorization, increasing the risk of attacks and intimidation against tankers carrying critical cargoes through the Strait of Hormuz.

Last week, the waterway saw the highest number of tanker attacks since the war involving Iran began, driving the number of vessels attempting to transit the strait to its lowest level in more than two months.

Iran has warned regional countries that any attempt to establish new routes for oil exports would be regarded as a hostile act. The warning forms part of a plan agreed upon by Iran's political leadership and the Islamic Revolutionary Guard Corps (IRGC).

A senior regional diplomat who had been briefed on the matter said Iran had no intention of relinquishing control of the strait. Tehran had drawn up plans to block shipping routes used by some regional countries to export oil. Possible measures could include attacking vessels with missiles and drones or deploying speedboats to intimidate them into turning back.

The diplomat said Iran intended to continue this policy of intimidation and threats. Iran's recent series of attacks appears to have made shipowners increasingly reluctant to transit the Strait of Hormuz, while the threat posed by Iran has intensified.

【Today's Events】

15:00 (UTC+8) Switzerland September Consumer Confidence Index

15:30 (UTC+8) ECB Governing Council Member Winch Speaks

21:35 (UTC+8) ECB Executive Board Member Isabel Schnabel Speaks

22:00 (UTC+8) US October Preliminary One-Year Inflation Expectations

22:00 (UTC+8) US October University of Michigan Preliminary Consumer Sentiment Index

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