If the War Drags On, Rates Could Rise, Rochester Says

Yields up , medium term, interviewee implicit

implicit

NDX cautious down , short term, interviewee implicit

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RUT

Oil cautious up , short term, interviewee implicit

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Metals

USD up , medium term, interviewee explicit

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Jordan Rochester 8.0

If the War Drags On, Rates Could Rise, Rochester Says

oil; dollar

dxy

The way I see the dollar appreciating right now is I think we'll get euro dollar down to 1.12. We talk about 1.10 if we get to July and onwards. Forecast is conditional on war duration driving a terms of trade shock, with a clear downward path for EUR/USD (dollar up).

2/19/2026 2:30:40 PM	short term up	5 days later	-0.10%	-0.10%
10/13/2025 2:35:32 PM	short term cautious up	5 days later	-0.53%	-0.26%

yields

The core thesis is that inflation risks (broad second-round effects) are underestimated, forcing central banks to deliver priced-in hikes (ECB/BoE) and potentially leading to more aggressive Fed hiking than currently expected. The reasoning points to higher policy rates, implying upward pressure on yields.

1/22/2026 10:28:03 AM	medium term up	20 days later	-3.18%	-3.18%
1/19/2026 5:42:31 AM	short term up	6 days later	-1.91%	-1.91%
12/19/2025 8:24:36 AM	medium term up	21 days later	+0.43%	+0.43%
12/11/2025 6:13:10 AM	medium term cautious up	21 days later	-0.17%	-0.08%
9/27/2025 1:39:47 AM	short term sharp up	7 days later	+0.51%	+0.76%

Inflation versus growth. Do you put more weight on one versus the other?

John
Jordan Rochester

Inflation is the most important thing, but it depends on the central bank. In Europe, the mandate is clear (CPI target), and central banks will respond with demand destruction via rate hikes already priced by the market.

Highlights the difference between the Fed's dual mandate (where labor markets matter more) and the ECB/BoE's explicit inflation targeting.
On the US side: the economy is strong, labor market tight, and fiscal support (tax refunds) coincides with high oil prices. Are we underestimating second-order effects?

John
Jordan Rochester

Yes, we are underestimating. The US economy is resilient. The risk is pricing in more aggressive Fed rate hikes than currently credited.

Cites colleague Stephen Rostow's view of no Fed cuts this year (pre-war). Warns that a new Fed chair may not deliver hoped-for cuts, and the FOMC might discuss raising rates.
Jordan Rochester

The oil shock extends beyond energy to polyester, fertilizers, helium, clothing, plastics, and food, creating broad second-round inflation effects.

Criticizes economists for focusing only on energy and ignoring these broader channels. Raises the risk of a prolonged war extending these pressures.
Is 2022 a good reference point for this moment?

John
Jordan Rochester

Yes, for trading it's a valid playbook. Currency and credit markets are following 2022 price action closely.

Acknowledges economists argue differences (fiscal policy, job vacancies, China supply chains) but emphasizes elevated inflation expectations and firm pricing power make this a precarious time for central banks to call inflation transitory.
How much upside for the dollar versus the euro based on that trading playbook?

John
Jordan Rochester

Dollar appreciation depends on war duration. If over soon, EUR/USD could head to 1.16-1.18. If it persists to July/September, forecasts lower to 1.10, then parity.

Current view: EUR/USD to 1.12, then 1.10 if war continues. The terms of trade shock (from energy) is buffered by already-priced ECB/BoE rate hikes, but could eventually overwhelm the interest rate story.

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