The fragile U.S.-Iran ceasefire, which took effect June 18 under a memorandum of understanding, collapsed this week following a rapid escalation of hostilities. Iranian forces attacked commercial shipping in the Strait of Hormuz, prompting the U.S. to launch retaliatory strikes on July 8, hitting over 80 Iranian targets. President Trump declared the ceasefire “over” on July 8 and U.S. Central Command conducted a second round of strikes the following day. As of this morning, a U.S. official said diplomatic talks are continuing despite the clashes; describing them as “technical talks,” though the path to a permanent peace deal remains highly uncertain. Oil prices and bond yields surged on the news as inflation expectations were reignited.  

The minutes from the Federal Reserve’s June meeting revealed a sharply divided committee on the future path of interest rates. This underscored the uncertainty facing policymakers as they balance persistent inflation against potential economic slowing. While the Fed unanimously left its benchmark rate unchanged at 3.50%–3.75%, many officials indicated rates could end the year at or slightly below current levels. An equal number of officials believed additional rate increases may be necessary. The minutes highlighted growing concerns that inflation pressures could remain elevated, particularly amid the economic fallout from the Middle East conflict and higher energy costs. Fed Chair Kevin Warsh’s first meeting at the helm also reflected his preference for less forward guidance, with policymakers emphasizing that future decisions will remain heavily dependent on incoming economic data rather than a predetermined policy path. As of this writing, interest rate futures are pricing in a 50% chance for a rate hike at the September Fed meeting. 

Fed Chairman Warsh has appointed a new AI task force made up of prominent technology and economic leaders, including venture capitalist Marc Andreessen, economist Charles I. Jones and Xbox CEO Asha Sharma. The team will help assess how artificial intelligence could impact economic growth, productivity and monetary policy. The move reflects Warsh’s long-held belief that AI could be a transformational force capable of boosting productivity and allowing the economy to grow faster without generating excessive inflation. This could potentially support lower interest rates over time. Warsh’s optimistic view is not universally shared within the Federal Reserve. Recent Federal Open Market Committee discussions highlighted significant uncertainty about the timing and magnitude of AI-driven productivity gains. Some Fed officials, including New York Fed President John Williams, have also warned that surging demand for semiconductors, electricity and other AI-related inputs could add inflationary pressures in the near term. The task force is expected to complete its work by year-end and could play an important role in shaping how the Fed evaluates AI’s long-term impact on the economy.

KEY INDICATORS THIS WEEK

Existing Home Sales – Fell 2.4% in June.
Next week – CPI, PPI