Under different circumstances, we would be commenting today on Kevin Wors’s first appearance yesterday as Fed chair. This is because, through the tone of his remarks—rather than the unanimous decision by the relevant committee to leave the federal funds rate unchanged at 3.5%–3.75%—he sent a message to the markets that the so-called “Fed put” is no longer a given.
The “Fed put” refers to the investment community’s belief that the U.S. Federal Reserve will intervene if markets fall, by cutting interest rates and/or providing liquidity to stem the decline.
If Wars, who was previously considered a “hawk” for his anti-inflation stance, follows through on what he has hinted at and is not deterred by the AI narrative from proceeding, uncertainty in the markets will increase, and we do not believe this will benefit the U.S. economy in the first place, nor the European economy or others.
It should be recalled that Wars had argued that AI would dramatically increase productivity and lower prices, in an attempt to explain why he believed interest rate cuts—rather than hikes—were necessary. However, all of this was before Congress confirmed his appointment as Fed chair.
All of this comes at a time when the ECB is raising the euro’s intervention rates to combat rising inflation in the EU, which was caused primarily by the U.S.-Iran war in the Middle East. A war in which the EU did not participate but to which it proved to be fully exposed.
It is no coincidence that the OECD has revised downward its growth forecasts for the EU to 1.1%–1.3% in 2026 and for the eurozone to 0.8% this year due to the energy shock caused by the war in Iran. The largest downward revision, by 0.7 percentage points, was for Germany, as it is estimated to grow at a rate of 0.2%–0.4% and a similar downward revision in France, bringing its forecast down to 0.7%–0.9%, as well as a 0.5-point downward revision for Italy, resulting in a forecast of 0.6% for Italy, 1.6% for Spain, and 1.3% for Portugal.
The OECD forecasts 1.9% growth for Greece in 2026, down from its previous estimate of 2.1%, as well as a rise in inflation to 4.2%. All of this is contingent on a “temporary disruption.”
The EU’s exposure to the Gulf War was greater because it imports oil and natural gas. Furthermore, it lacks significant fiscal space for intervention, consumer confidence is more vulnerable, and the finances of European households are not as robust—though they are stronger than those of Chinese households. Moreover, it did not participate in the negotiations to end the war.
The EU found itself exposed because rising energy costs did not merely fuel inflation; they also forced several governments to spend large sums on fuel subsidies, leaving them with limited room for fiscal maneuver.
In a war in which Iran gained leverage over the Strait of Hormuz and the U.S. benefited through its domestic energy market, the EU found itself exposed, with no leverage of its own and the bill to pay.
For this reason, the EU can be described as the big loser of the war in Iran.