President Trump is weighing invoking the Defense Production Act to accelerate U.S. oil and fuel production, three sources familiar with the discussions said. The move targets headline inflation by flooding the market with domestic supply, a variable bond traders have yet to fully price into the curve.
The DPA grants the president broad power to compel industries to prioritize federal contracts and allocate critical resources. Applied to energy, this could direct specific oil and gas companies to accelerate drilling, expand refining capacity, or expedite pipeline construction—bypassing market incentives entirely in favor of rapid supply expansion.
If successful, the policy would hit crude oil prices directly. Crude has been a persistent driver of headline CPI. Lower energy costs would ease overall inflation readings, which in turn alters the Fed's policy path. Bond traders would watch TIPS breakevens—particularly the five-year and 10-year—for compression signaling reduced inflation expectations.
A credible DPA deployment could steepen the five-to-30 segment of the curve. Long-term inflation expectations would fall as abundant domestic supply becomes credible, while short-term rates stay pinned by current Fed policy and data. The dollar would likely strengthen if the market reads the policy as genuinely stabilizing domestic energy costs, offering a hedge against global oil volatility and import pressure. Credit spreads for energy-intensive sectors could tighten alongside falling crude.
An official announcement detailing specific DPA orders and targeted sectors is expected within two weeks, according to one source. That detail will move markets—energy futures and duration strategy alike.
