Iran Impact Hitting Those at Bottom of 'K-Shaped Economy Hardest, Says Peter Atwater

Peter Atwater, president of Financial Insyghts, said that fallout from the Iran war is 'disproportionately' impacting those at the bottom of the 'K-shaped economy' as Americans feel the crunch of higher energy prices. Atwater says that the US has a 'Downton Abbey' economy, where those at the top can get anything delivered and prepared by others and don't see what is happening below.

reasury Secretary Scott Bessent’s benchmark financial asset — 10-year US Treasuries — are poised to mark their biggest monthly tumble since Donald Trump returned to the White House, casting a shadow over the economic outlook as the administration struggles to contain an energy crisis.

While Bessent has assured that the global oil deficit caused by the Iran war is being addressed, and predicted crude prices will retreat within months, investors are flagging enduring concern. In spite of Tuesday’s rally in government debt, 10-year yields are up 35 basis points on the month, reflecting inflation risks from higher energy costs and diminished likelihood of Federal Reserve interest-rate cuts in the coming year.

“The risks to the growth outlook are more severe,” said Brij Khurana, a portfolio manager at Wellington Management. “Three months ago, we were talking about AI continuing to be this massive disinflationary growth impact to the economy and now we’re talking about a supply-side shock that the Fed can really do very little about.”

Federal Reserve Chair Jerome Powell on Monday reiterated his view that “our policy is in a good place for us to wait and see” how the energy shock unfolds.

But traders haven’t waited to price out interest-rate cuts that the Trump administration has long called for. Futures show no rate reductions fully priced in for any central bank policy meeting through July next year. By contrast, at the end of last month, some 75 basis points of easing was anticipated.

Even Fed Governor Stephen Miran, Trump’s former chief economist, has tempered his call for rate cuts — though he cited higher-than-expected inflation readings rather than the Iran war. That speaks to a broader backdrop of worry for the administration, amid tariff hikes that continue to push price increases well past the Fed’s 2% inflation target.

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