Trump demands Fed cut rates. His Iran war has investors betting otherwise

March 12 (Reuters) - As oil prices surged on Thursday amid an intensifying Iran war, U.S. President Donald Trump again demanded Federal Reserve Chair Jerome Powell cut interest rates.

"He should be dropping Interest Rates, IMMEDIATELY," Trump said in a Truth Social post.

But since the U.S. and Israel launched strikes on Iran on February 28, investors have rushed the other way, betting that higher oil prices will worsen inflation and keep the Fed from cutting until the end of the year, if then.

Interest-rate futures that had been priced for two quarter-point cuts by the end of the year before the conflict began are now barely pricing in one. That's despite the expectation that former Fed Governor Kevin Warsh, whom Trump picked to succeed Powell as a more rate-cut-friendly Fed chair, will take the helm of the U.S. central bank in mid-May when Powell's leadership term ends.

Iran's new Supreme Leader Mojtaba Khamenei vowed on Thursday to keep the Strait of Hormuz shut, disrupting transport for one-fifth of the world's oil supply. U.S. West Texas Intermediate crude jumped, settling at $95.70.

Higher oil prices mean higher gasoline prices, which also can inflate prices for food and other goods via higher transport costs.

Food prices will also rise because Hormuz is a major global conduit for fertilizer shipments, analysts forecast.

Goldman Sachs analysts said on Thursday they now see PCE inflation, which the Fed targets at 2%, rising to 2.9% by December, and pushed their own expectation for the next Fed rate cut to September, from June previously.

(Reporting by Ann Saphir; Editing by Jamie Freed)