Weekly Economic Update
June 17, 2025

 

ISRAEL TAKES ACTION AGAINST IRAN

Last week ended with Israel preemptively attacking Iran and its nuclear weapons capabilities. Iran was in talks over its nuclear ambitions, but the talks were viewed as going nowhere. Instead, Iran was trying to enrich as much weapons-grade uranium as possible, and it was believed they had enough to construct multiple nuclear weapons.¹ This was a scenario Israel could not afford to take a chance on.

After the International Atomic Energy Agency (IAEA), the UN’s nuclear watchdog, issued a damning report that Iran was not living up to its non-proliferation obligations for the first time in nearly 20 years, Israel took action.² The attack did not end with nuclear facilities; it also included Iranian ballistic missile sites (both military and manufacturing), military bases, and the leadership of the Iranian military. Israel also stated the attacks will continue until Iran does not have the capability to produce nuclear weapons.

Markets reacted to this new geopolitical shock predictably, as futures fell aggressively overnight Friday and oil prices spiked, given Iran’s significant oil resources.^3,4 Markets came back during the day but faded into the close as Iran shot more rockets into Israel, and traders figured they didn’t want to get caught going long into the weekend when who knows what might happen next. The big unknown is just what Iran is still capable of. The next few days will be tense, but as far as markets are concerned, right now, this is not the start of something bad. Once the initial shock wears off, markets will likely march on.

INFLATION HOLDS STEADY BUT NEEDS TO MOVE DOWN MORE

The consumer price index (CPI) for May rose slightly (2.4% year-over-year) but was still below expectations (2.5%), while the producer price index (PPI) was the same in May as it was in April.^5,6 It appears prices aren’t going up as a result of all the tariff uncertainty. It also looks like things have settled down for the moment, and the worst fears people expressed during the depths of the April sell-off have not come to pass.

Still, news outlets are saying things like: “Economists still expect the Trump administration’s tariffs to push up prices and lift inflation later this year,” but “the near-term trend remains favorable, enabling the (Fed) to signal next week that it still intends to begin easing policy again later this year.”⁷ Who is saying that? Why would you cut rates if you expect inflation to pick up? Inflation seems not to be an issue in 2025 so far.

We don’t think we will see a return to inflation because of the tariff turmoil. The experts have been wrong about tariffs and trade negotiations so far, so why do we think these predictions will be any better? Federal Reserve Chair Jerome Powell will wait until we see several months of sub-2% inflation data before finally making a move.

Will this imperil the economy? Probably not, but it will continue to cause pain for consumers and our nation, which are both burdened by debt. Higher interest payments mean consumers have less to spend on other things, and higher interest costs on our nation’s debt mean the government has less money for programs that need funding.

At the end of the day, higher interest rates slow economic growth. If the Fed lowers rates, consumers will get a break, and the country will pay less in interest. The Fed has chosen to stand by as a spectator rather than be proactive in navigating the economy on a course to prosperity. We will slog forward the rest of the year. It seems likely that once Powell’s term is up, President Donald Trump will appoint a Fed chair who will champion lower rates when the situation calls for lower rates.

CHINA DEAL?

After two days of meetings in London, President Trump, who was not in attendance, announced via social media: “Our deal with China is done, subject to final approval from President Xi and me.”⁸ So far, the details are sketchy, but we have heard the negotiations were triggered by U.S. concerns that China was being too slow to release exports of its magnets and rare earth minerals, which are essential for manufacturing everything from smartphones to electric vehicles.

In turn, Beijing has criticized the controls the U.S. has put in place to limit the country’s access to semiconductors and other related technologies linked to artificial intelligence. They also don’t like the Trump administration’s crackdown on visas for Chinese students. So far, it appears both sides have had their concerns addressed.⁹ Outside of that, there really wasn’t much detail provided.

Instead of surging forward on the trade news, markets sold off mildly. Even the better-than-expected inflation reports did little to spark any excitement. There will be more twists and turns in these China trade talks, so maybe the markets took a breather. Despite all last week’s news, the S&P 500 is still 100 to 200 points off a record. That’s miraculous, given all that’s gone on in the first half of 2025.

COMING THIS WEEK

• Now that inflation and employment data is out of the way, markets will be fixated on the Fed meeting this week. That data hasn’t been signaling definitively that the Fed needs to move, despite pressure from President Trump. There is a virtually zero chance the Fed moves to lower rates, but Powell’s post-meeting comments will be worth a listen.¹⁰
• Be on the lookout for any tariff/trade news this week. The Israel/Iran conflict could also hijack the news cycle, as will the D.C. military parade and the protests across the country over the weekend.
• This week’s action will include retail sales and business inventories (Monday/Tuesday) and MBA mortgage applications (Wednesday). Markets will be closed on Thursday for the Juneteenth holiday but will open on Friday. The Philly Fed manufacturing survey numbers will be released that day, and it will be a good snapshot of the current state of U.S. manufacturing, given all the recent intrigue around tariffs.
• Powell’s news conference on Wednesday will be highly scrutinized for any clue about when to expect a rate cut and whether there will be more than the two or three markets are currently pricing in by year-end.
  

Sources:
1. Francois Murphy. Reuters. June 12, 2025. “IAEA board declares Iran in breach of non-proliferation obligations.” https://www.reuters.com/world/china/iaea-board-declares-iran-breach-non-proliferation-duties-diplomats-say-2025-06-12/. Accessed June 16, 2025.
2. Jon Gambrell, Melanie Lidman and Julia Frankel. Associated Press. June 13, 2025. “Israel strikes Iran’s nuclear sites and kills top generals. Iran retaliates with missile barrages.” https://apnews.com/article/iran-explosions-israel-tehran-00234a06e5128a8aceb406b140297299. Accessed June 16, 2025.
3. MarketWatch. June 13, 2025. “Stock Market on June 13, 2025: Dow ends down more than 750 points after Iran responds to Israel’s attack with missiles over Tel Aviv; S&P 500, Nasdaq book weekly losses.” https://www.marketwatch.com/livecoverage/stock-market-today-israel-attack-on-iran-puts-dow-s-p-500-nasdaq-on-track-for-steep-losses. Accessed June 16, 2025.
4. Business Insider. “Oil (WTI).” https://markets.businessinsider.com/commodities/oil-price?type=wti. Accessed June 16, 2025.
5. U.S. Bureau of Labor Statistics. June 11, 2025. “Consumer Price Index Summary.” https://www.bls.gov/news.release/cpi.nr0.htm. Accessed June 16, 2025.
6. U.S. Bureau of Labor Statistics. June 12, 2025. “Producer Price Index News Release summary.” https://www.bls.gov/news.release/ppi.nr0.htm. Accessed June 16, 2025.
7. Colby Smith. The New York Times. June 13, 2025. “Where’s the Inflation From Tariffs? Just Wait, Economists Say.” https://www.nytimes.com/2025/06/13/business/economy/tariff-trade-war-inflation.html. Accessed June 16, 2025.
8. Peter Hoskins and Natalie Sherman. BBC. June 11, 2025. “Trump says rare earths deal ‘done’ with China.” https://www.bbc.com/news/articles/c4gkmy26e2po. Accessed June 16, 2025.
9. Jeff Mason, Alistair Smout and Doina Chiacu. Reuters. June 11, 2025. “Deal to get US-China trade truce back on track is done, Trump says.” https://www.reuters.com/world/china/us-china-trade-talks-resume-second-day-2025-06-10/. Accessed June 16, 2025.
10. CME Group. “FedWatch.” https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html. Accessed June 16, 2025.

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