Treasury chief says US growth may exceed 3% or 3.5% this year despite Iran war

Treasury Secretary Scott Bessent said the U.S. economy remains strong and could still grow more than 3% to 3.5% this year, even as the Iran war has driven oil prices higher and blocked the Strait of Hormuz, through which roughly 20% of global oil and natural gas exports previously moved. The IMF cut its growth outlook on Tuesday because of war-related energy price spikes. Bessent also said U.S. tariffs could return to prior levels by early July as the administration pursues Section 301 actions following the Supreme Court ruling.

Analysis

The market is still underpricing how quickly a Hormuz disruption translates from an oil story into a broader margin squeeze. The first-order move is obvious—energy and shipping rates up—but the more durable second-order effect is that imported-input inflation can reaccelerate before growth data rolls over, forcing rate expectations to become directionally inconsistent: weaker real activity but stickier inflation. That combination tends to punish long-duration assets and cyclicals simultaneously, which is more damaging than a simple “growth scare” because it compresses equity multiples while earnings estimates get revised down.

The tariff backdrop adds a separate inflation impulse with a much slower transmission mechanism. If broad duties reappear by early July, the initial equity market reaction may be concentrated in retailers, industrials, and autos, but the real risk is a second-round reset of inventory behavior: firms front-load imports, then get caught with higher working capital and margin pressure into Q3. That creates an asymmetric setup for domestically exposed companies that can reprice faster than peers with global sourcing, especially where pricing power is low and inventory turnover is high.

The consensus is likely overconfident that peace-talk headlines or a temporary de-escalation will unwind the entire move. Even if the Strait reopens, insurers, shipping contracts, and inventory planning will not normalize instantly; the lagged effects can persist for several quarters. On the other hand, if diplomacy progresses, the sharpest reversal should be in freight-sensitive names and crude-linked volatility, not in tariff-exposed sectors where policy risk remains live and independently can reintroduce margin pressure into summer earnings season.

Key Decisions for Investors

• Long XLE vs short XLY for the next 4-8 weeks: energy earnings get immediate help from higher realized prices while consumers absorb the tax via fuel, with a favorable risk/reward if crude stays elevated above current levels.
• Buy call spreads on VLO or MPC into the next 1-2 earnings windows: refiners can capture wider cracks if crude outruns product demand, but define risk tightly because a fast peace headline would compress margins quickly.
• Short FDX/UPS on any strength over the next 2-6 weeks: higher fuel, insurance, and rerouting costs can hit parcel margins before volume data weakens, while a near-term ceasefire only partly offsets the cost shock.
• Pair long domestic low-import retailers/services vs short apparel/home-goods importers ahead of July tariff risk: names with U.S.-centric sourcing should outperform if duties return, while import-heavy discretionary retailers face a double hit from costs and softer demand.
• Use Brent downside hedges only on peace-talk rallies, not into spike highs: the better trade is selling upside volatility after a relief move, because structural supply-risk premiums can persist even if the blockade narrative improves.