Oil surges, Treasury yields hit 19-year high as US-Iran strikes resume

US government borrowing costs reached their highest level since 2007 after the Federal Reserve left interest rates unchanged, a move that has amplified concerns over inflation driven by President Donald Trump's military campaign against Iran. The yield on the 30-year Treasury bond climbed 14 basis points to nearly 5.24 percent following the central bank's decision to keep its benchmark rate between 3.5 percent and 3.75 percent for a fifth straight meeting.

Fed Chair Kevin Warsh insisted the institution would not waver from its 2 percent inflation target, dismissing any notion of a higher implicit goal. Yet investors reacted with unease, sending the S&P 500 down 1.5 percent, the Dow Jones industrial average 2.2 percent lower and the Nasdaq off 1.7 percent. The selloff reflected worries that the economy is struggling to absorb price pressures tied to the conflict, which has pushed oil prices higher after a brief ceasefire collapsed.

The military escalation added to the uncertainty. Hours after Trump vowed to strike Iran “very hard,” US forces launched attacks on dozens of Revolutionary Guards targets in response to an Iranian strike on American troops in Jordan. The barrage followed earlier US and Saudi operations against Iran-backed militias in Iraq. With fighting resuming, analysts see little prospect of quick de-escalation.

The economic fallout has already appeared in consumer prices. Inflation eased to 3.5 percent in June during the short-lived pause in hostilities but has begun climbing again as supply concerns mount. Economists note that higher bond yields are effectively tightening financial conditions across the economy, yet the Fed has signaled no immediate rate increase is planned.

Corporate results underscore the uneven impact. Shell reported adjusted second-quarter earnings of 9.84 billion dollars, its strongest quarterly performance since 2022, when Russia's invasion of Ukraine drove up energy prices. The company cited elevated realized prices and strong trading results. Cash flow from operations reached 21.4 billion dollars, while net debt fell to 41.75 billion dollars. Chief executive Wael Sawan described volatility as the new normal and credited operational discipline and trading for capitalizing on the commodity surge.

The contrast between rising household borrowing costs and record oil-company profits has drawn scrutiny from critics who argue the administration's foreign policy choices are imposing direct costs on American workers and families. With no clear end to the conflict in sight, markets are bracing for further volatility in both interest rates and energy prices.