Good morning and Happy Father’s Day to all the dads out there! We have lots of ground to cover this morning. The Federal Reserve is meant to be a non-political, data-based entity. Yet the latest warfare in the Middle East is about to complicate matters for policymakers whether they want to pay attention or not.

Rising inflation for new reasons

The Fed’s decision to hold off on rate cuts drew the ire of President Trump and other market-watchers — including the team at Opening Bell Daily — who pointed to a deteriorating labor market and four consecutive months of cooler-than-expected inflation. 

Yet with the sudden escalation in the Israel-Iran conflict and subsequent spike in oil prices, Fed chief Jerome Powell now appears unintentionally prescient for standing pat. 

Brent crude, the international oil benchmark, closed Friday at $74.23 a barrel, up about 6.4% from the day before Israel’s surprise strike on Iran and 14.8% in June.

The two nations exchanged volleys of missile strikes throughout the weekend.

While Powell dragged his feet on rate cuts for tariff-related concerns, the case for patience now looks more justified than just a few days ago albeit for different reasons.

Inflation is particularly sensitive to fluctuations in energy markets, and any upward pressure on crude oil can lead to an uptick in consumer prices. 

Separate from geopolitics, stagflation was already going to be top of mind for the Fed meeting this week. But surging oil raises the stakes for existing obstacles, according to Apollo chief economist Torsten Slok.

The Fed’s FRBUS economic model, which accounts for a range of macro factors, estimates that a sustained $10 increase in oil prices can push inflation 0.4% higher and drag GDP 0.4% lower. 

“Higher inflation says the Fed should be hiking,” Slok said.

“Lower GDP growth says the Fed should be cutting. So will the FOMC put more weight on the upward pressure on inflation or more weight on the coming slowdown in growth?”

For context, in January, days before President Trump took office for his second term, Brent crude closed at $82 a barrel. 

At the start of last week, Brent hit $66 a barrel — a 19.5% decline in five months. 

Meanwhile, CPI inflation hovered at 3% year-over-year as the Biden administration closed shop. The latest figure came in at 2.4%, marking a similar 20% drop from January. 

The Atlanta Fed currently forecasts the US GDP to reach 3.8% in the second quarter, but it’s possible rising oil prices could weigh on that outlook.

Historically, oil spikes have been associated with recessions in the US like in 1980, 1991, 2001 and 2008, as the chart from Yardeni Research illustrates. 

Investors, for their part, sold stocks Friday and each of the major three US stock indexes dropped more than 1.1%.

The Dow fell more than 700 points and it re-entered negative territory for 2025.

Market snapshot

Elsewhere

📈 President Trump says Israel and Iran need to end the war. He called on the countries’ leaders to make a deal, and said the US had “nothing to do” with Israel’s Friday attack on Iran. Iran cancelled their latest round of nuclear talks on Sunday. (Axios)

📊 Stablecoins are coming. The crypto assets are going mainstream fast, and the Senate looks to pass the Genius Act to provide a regulatory framework to make it happen. Now economists are wondering how stablecoins will change the current banking system if they expand in a big way. (WSJ)

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Rapid-fire

• An assassin killed Minnesota lawmaker Melissa Hortman and her husband Mark in their home in Twin Cities Saturday night (Axios)

• Investors, mortgage lenders and the government all see an angle for taking Fannie and Freddie public, as Trump has hinted at (Barron’s)

• US deal value is up around 3.8% at $750 billion so far this year, though the number of deals is down (WSJ)

• Trump’s 90-day deadline for Liberation Day tariffs is getting closer (Yahoo Finance)

• President Trump said he may exempt farms and hotels from immigration crackdown (CNBC)

• Multiple global central banks are expected to keep rates frozen in the coming weeks (Bloomberg)

Last thing

About me

📰 I’m Phil Rosen, co-founder and editor-in-chief of Opening Bell Daily. I’ve published books, lived on three continents, and won awards for my journalism, which has appeared in Business Insider, Fortune, Yahoo Finance, Bloomberg and Inc. Magazine.

I write our flagship newsletter to prepare you for each trading day — unpacking markets, economic data and Wall Street with analysis you won’t find anywhere else.

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