by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with a discussion of proposed reforms to US monetary policy. We then provide a fresh update on the conflict in Iran. In addition, we examine Google’s latest breakthrough and its implications for the market for memory chips, the impact of immigration crackdowns on population trends, and a new Chinese probe into US trade practices. As always, we include a summary of recent US and international economic data releases.

Fed Reform: The Federal Reserve could be set for a makeover once current Chair Jerome Powell steps down in May. The US Treasury Secretary Scott Bessent is considering ways to expand Treasury oversight of the central bank after a successor is named, with the possibility of making the Fed look more like the Bank of England. The change will likely be welcomed by Fed Chair nominee Kevin Warsh, who seeks reforms that influence not only the agency’s decision-making process but also its balance sheet management.

• Bessent is specifically targeting changes to the Fed’s operational independence. In a paper for International Economy magazine, he argued for revising how the Fed conducts quantitative easing, which he characterizes as a kind of “gain‑of‑function” policy experiment. He has also expressed support for a model of more limited interaction between the central bank and the government, similar to the Bank of England’s approach during the gilt market crisis.
• His proposals may also find support from Warsh, who had previously argued that the Bank of England manages its balance sheet more effectively than the United States. In 2014, Warsh served on a committee tasked with reviewing the Bank of England’s operations. He later praised the BoE’s practice of requiring governors to write formal letters to the chancellor to explain key decisions, arguing that this system clarifies the rationale for policy moves and enhances transparency.
• Potential changes to Fed policies are likely to intensify scrutiny over whether the central bank can maintain its independence, especially after several unsuccessful efforts to remove senior officials. Earlier this week, Jeanine Pirro, who had accused Chair Jerome Powell of lying under oath, conceded there was no evidence of wrongdoing. At the same time, questions have also emerged around the inquiry into whether Governor Lisa Cook misrepresented information on a loan application to secure more favorable terms.
• That said, whether or not the Fed will ultimately move closer to the BoE model, it does appear likely that it will keep trimming the size of its balance sheet. Fed Governor Stephen Miran has argued that, with targeted deregulation and reduced stigma around the use of the Fed’s lending facilities, the central bank could shrink its balance sheet by as much as $2 trillion without materially tightening financial conditions.
• We suspect the US Treasury and the Federal Reserve will maintain a close working relationship over the next few years as they navigate the impact of policy on long‑term interest rates. While any perception of coordination may draw scrutiny, clearer communication and more predictable operations from both institutions could help tame bond‑market volatility.

Iran Update: The war is now entering its fifth week, at the edge of the four‑to‑five‑week window the White House initially floated. On Thursday, President Trump announced that he had extended the timeline for a potential strike on Iran’s nuclear facilities, citing progress in ongoing talks. At the same time, Iran’s attacks appear to have intensified, signaling that it is not yet prepared to de-escalate the conflict. Meanwhile, trade through the strait is beginning to show signs of improvement, suggesting that there may be more that is unfolding behind the scenes.

• The president appears to be working through Middle East proxies to develop an off-ramp to the conflict. He has stated that he has been able to communicate with Iranian leadership through Pakistan, and that negotiations have so far gone well. This progress that led him to extend his deadline for targeting some of Iran’s critical infrastructure by 10 days. He later explained that the extension would allow the US to deploy as many as 10,000 additional troops to the Middle East.
• However, progress toward a deal has not yet produced a meaningful break in the fighting between the two sides. Israel and Iran continue to trade missile strikes. On Thursday, Israel announced that it had struck three of Iran’s ballistic missile and air defense systems. Meanwhile, Kuwait reported that two of its commercial ports were hit, while Saudi Arabia said it was forced to intercept Iranian missiles headed toward its capital, Riyadh.

• The conflict has nonetheless underscored Iran’s ability to disrupt traffic through the Strait of Hormuz. Despite US efforts, Washington has struggled to provide reliable naval escorts, with one analyst likening ships sailing under US or Israeli flags to “sitting ducks.” By contrast, vessels from friendlier countries such as China and India have generally found it easier to transit the strait, helping ease prices for Oman crude, which is largely shipped to Asia. Even so, new reports show that even these shipments are beginning to be turned away.
• Over the coming days, the market is expected to monitor developments more closely and may begin to price in a de-escalation of the conflict. Signs of concrete progress toward a resolution would likely facilitate a relief recovery; however, this sentiment remains fragile and could quickly reverse if market patience is tested. Given the current uncertainty, we recommend maintaining a conservative investment profile, prioritizing profitability and value over high-growth assets, as the situation unfolds.

Memory Disruption: A breakthrough from Google parent company Alphabet has triggered a selloff in memory‑chip stocks. The tech giant released a new paper describing an algorithm that could significantly increase the efficiency of the data storage needed to train and run artificial intelligence systems. If widely adopted, the innovation could reduce reliance on high‑end memory chips, which have been in short supply amid the AI infrastructure boom. That shift could be a boon for AI developers but a headwind for chipmakers.

Immigration Crackdown: The initiative to reduce immigrant populations has resulted in a contraction across 40% of US counties. This sharp demographic shift may partially explain the recent softening of the labor market. Historically, stagnant or declining population growth has weighed on overall economic expansion; however, this trend could be counterbalanced by a surge in productivity, particularly if AI adoption accelerates.

Beijing Probes US: Chinese regulators have launched an investigation into US trade practices, a move that follows the announcement of President Trump’s scheduled visit to China in mid-May. The probe is expected to focus on trade policies that disrupt global supply chains and restrictions on green technology. Furthermore, the investigation will likely define the parameters for a potential trade agreement as both sides convene to resolve their economic differences.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens by highlighting the ongoing controversy around private credit, including offering the differing outlooks for the asset class. We then provide another update on the Iran conflict. In addition, we examine a recent legal setback for social media companies and outline mounting economic concerns in Argentina. As always, we include a summary of recent US and international economic data releases.

Private Credit: While recent headlines have taken a dim view of private credit, we think the outlook is more constructive than many acknowledge. On Wednesday, Lloyd Blankfein cautioned that a single shock could prompt these lenders to reassess the value of their holdings, potentially forcing substantial markdowns after a run of failed portfolio sales. His remarks come after several firms were unable to find buyers for slices of their private asset books. However, there is more to the story than Blankfein suggests.

• The concerns are being driven by several prominent private credit firms which in February posted their weakest performances since 2022. The weakness reflects mounting scrutiny over the valuation of software‑as‑a‑service (SaaS) firms, as AI tools from Claude and others can perform comparable functions at lower costs. This threatens SaaS companies, which account for roughly one‑fifth of these lenders’ balance sheets. In response, some firms have imposed limits on client withdrawals to contain the fallout.
• A key concern for the software sector is the looming “maturity wall,” as a large wave of loans are coming due in 2027 and 2028. Many of these facilities are highly levered, making their capital structures a growing focus for investors. In response, software firms are working to demonstrate the durability of their business models — some by moving quickly to showcase sustainable profitability, others by refinancing to bolster valuations and strengthen balance sheets.
• That said, the situation may not be as dire as it is being portrayed. While major private credit firms have faced some pushback, many of the big names still outperformed the broader leveraged loan market in February. This outperformance signals that the risk to these credit funds has less to do with perceived default risk and more to do with going concern risk. In short, much of the decline in valuation stems less from present day performance and more from future earnings expectations.
• It is also worth noting that while many software companies may be in danger, AI also presents opportunities for them to pivot. Over the last few months, several software companies have begun reshaping their business models to more closely resemble AI agents, which has helped improve their outlook. One company that has been able to make this transition is Salesforce, which has shifted its software-as-a-service model to more of a service-as-software approach.
• While there is plenty of doom and gloom around AI and private credit, it is worth remembering that we are still in the early stages of both trends. That leaves time for weaker companies to adapt and potentially stage a comeback. In our view, the risks in private credit are real but likely less severe than the most alarmist headlines imply. This is a sector to watch closely but not one that should trigger outright panic.

Push to the End: The US is continuing to push for an end to its conflict with Iran by any means necessary. On Wednesday, Tehran rejected the White House’s 15‑point ceasefire proposal, which was conveyed via intermediaries including Pakistan. In response, Iran tabled its own five‑point set of conditions, which includes demands for reparations and formal recognition of its authority over the Strait of Hormuz — a proposal likely to meet the same fate. Washington, meanwhile, has intensified its military campaign even as indirect contacts persist.

• Tehran’s rejection of recent US overtures has drawn a sharp rebuke from President Trump, who is now calling for a more decisive international response. The president warned that Iran must engage seriously before “time runs out.” His remarks come as the White House signals that it is preparing for what officials are describing as a potentially decisive phase of the campaign, with options under discussion reportedly ranging from strikes on critical infrastructure, including power facilities, to the possible deployment of ground forces.
• The White House has already begun preparing for the potential economic fallout of a broader conflict. On Wednesday, the Pentagon announced that it has raised the maximum enlistment age for active‑duty service to 42 and is reportedly considering reallocating weapons systems originally designated for Ukraine to support US operations in the Middle East. Additionally, officials are running contingency scenarios for a spike in crude prices to $200 per barrel.
• What happens next is likely to carry significant repercussions for the global economy, given the potential to reshape the balance of power in the Middle East. A resulting power vacuum could fuel a more protracted conflict, particularly if the US is unable to secure meaningful cooperation from regional leaders in an effort to restore stability. While this remains a worst‑case scenario, it would also imply heightened volatility in energy markets.

Social Media Loses: Meta and Google suffered a major legal defeat over the impact of social media on mental health. A court ruled on Wednesday that their platforms created conditions that made them addictive for young users, leaving the companies liable for resulting harm. The decision marks a significant setback, raising the possibility that social media could be treated as a public health risk and subjected to stricter regulation, potentially on a scale comparable to tobacco.

Argentina Slowdown: Milei’s economic agenda appears to be running into headwinds as the broader economy softens. While his plan has centered on cutting spending to improve Argentina’s fiscal position, the strain now seems to be emerging on the revenue side. In recent months, overall growth has slowed and tax receipts have struggled to keep pace with inflation. This slowdown has raised concerns that he may need to alter policy to keep his agenda on track.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens by highlighting growing optimism that there is now a plausible pathway toward de‑escalation in the Middle East conflict. We then examine why expectations are building that the Federal Reserve may be preparing for a more hawkish policy stance. In addition, we discuss the Pentagon’s potential setback in its lawsuit with Anthropic and the emergence of Arm as a serious new rival in the chipmaking space. As always, we include a summary of recent US and international economic data releases.

 Easing Tensions? The market gained cautious optimism following signs that the White House is engaging in direct talks with the Iranian leadership. On Tuesday, President Trump suggested that negotiations were progressing, claiming Tehran had offered a “present” as a sign of good faith. While these claims were quickly undermined by additional US troop deployments and Tehran’s refusal to acknowledge talks, the market continues to hold out hope that cooler heads will prevail as it awaits an end to the conflict.

• The easing of tensions appears to be part of a White House effort to build momentum after Monday’s announcement of a five-day pause before deciding whether to strike Iran’s power infrastructure. It has been reported that the US has presented a 15-point peace plan, several elements of which Iran had previously signaled it could accept. Although it is still unclear who will attend any meetings, US officials are working to start talks with Iranian representatives on Thursday.
• While the White House has pushed for diplomacy, Iran has publicly rejected claims that it is willing to end the conflict. The failure to acknowledge talks comes as Iranian officials express distrust that the US, or even their own leadership, might use peace negotiations as a means to compromise their position or security. As a result, Iranian officials have stated they are not prepared to engage in negotiations as long as attacks continue and have warned that the Strait of Hormuz will remain closed.
• Despite Iranian resistance, there is growing international pressure to bring both sides to the negotiating table. China’s foreign minister, Wang Yi, has urged Iran to consider talks with the US, insisting the crisis should be resolved through diplomacy rather than force. At the same time, a group of Middle Eastern states, including Pakistan, Egypt, and Turkey, has moved to establish a backchannel between Washington and Tehran to facilitate potential negotiations.
• Even so, Iran has offered a limited concession, indicating it will allow non‑hostile vessels to transit the strait, amid reports it is charging fees of up to $2 million per voyage. This levy signals Tehran’s effort to assert de facto control over the waterway, while also suggesting that commercial shipments may face fewer outright blockages. On Tuesday, reports indicated that a Thai-flagged vessel successfully passed through the contested waters.
• Hopes of easing tensions have fueled a rebound in risk assets, with gold and silver prices recouping some of their recent losses. In the short term, we expect a fragile recovery that could strengthen over time as confidence grows that the conflict will end. This could lead market attention to shift from concerns about escalation to an assessment of the broader impact of the conflict. Looking ahead, investors may begin to favor companies that show earnings resilience and operational efficiency.

Fed Expectations: The sudden rise in energy and commodity prices has led to concerns that the Federal Reserve may need to make a hawkish pivot later this year. Earlier this week, Chicago Fed President Austan Goolsbee was the first to publicly state that tightening could be on the table. Speaking with CNBC, he said he could be open to a rate hike depending on how the conflict plays out. Although he also noted that rate cuts remain a possibility, his remarks show that inflation concerns are rising within the FOMC.

• Goolsbee’s comments suggest that the Fed’s focus may be shifting away from its maximum employment mandate in favor of price stability. Following the recent Fed meeting on March 17–18, Powell acknowledged that several board members could also see a rate hike in the future, though it is not the base case for the majority. However, he indicated the Fed is prepared to take appropriate action if inflationary pressures begin to build due to the Iran conflict.
• That said, even as the tone has shifted, the FOMC has also signaled that it is prepared to adopt a wait‑and‑see stance before pivoting toward rate hikes. On Tuesday, Fed Governor Michael Barr indicated that rates may need to be held steady for some time as the conflict unfolds, while Governor Stephen Miran suggested that although higher oil prices could push up goods and energy costs, he remains optimistic that the Fed could still cut rates several times this year.

• Markets are already leaning more hawkish, even as Fed officials remain non‑committal about how the Iran war will ultimately shape policy. The latest one‑month SOFR futures for December indicate that investors now expect the Fed to keep rates on hold, with some probability assigned to a hike before year‑end, whereas before the conflict, they had been pricing in as many as two cuts.
• A potential hawkish shift by the Federal Reserve is likely to remain a central theme even after the conflict ends, as the economy braces for renewed inflationary pressures in the coming months. For now, we remain skeptical that the Fed will be willing to vote for another rate hike, given the significant political pressure from the White House. That said, we have grown less optimistic about the Fed’s ability to cut rates without clear signs that the labor market outlook has begun to deteriorate.

 Pentagon Anthropic: A judge signaled that she may not side with the US government in its dispute with Anthropic. The judge overseeing the case stated that the Pentagon was using the removal of its contract as punishment for Anthropic taking its dispute public over the use of AI. The comments suggest that the government’s ability to award or withdraw contracts at will is likely to be taken up by the Supreme Court. The ongoing fight is expected to have implications for future public-private partnerships as the government gets more involved in the economy.

Chip Rivals: More companies are looking for ways to bypass major chipmakers by designing their own semiconductors. Arm appears to be making headway in this shift after announcing that it has developed its own chips, potentially allowing it to compete more directly with larger manufacturers. The company expects orders to rise following reported commitments from Meta and OpenAI. The emergence of new chip rivals is likely to accelerate as AI becomes a more prominent force in the global economy.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with an update on the Iran war and its economic and financial market implications. We next review several other international and US developments that could affect the financial markets today, including a new free-trade agreement between the European Union and Australia and a potential deal in Congress to resolve funding for the Transportation Security Administration to quell airport security lines.

United States-Israel-Iran: Saudi Arabia, Kuwait, and Bahrain all indicated they have been hit by new Iranian drone and missile strikes this morning, but it isn’t clear whether the attacks caused new damage to their globally important energy infrastructure, commodity production, or shipping facilities. The strikes came despite President Trump’s vow yesterday that the US would postpone new attacks on Iranian power plants because of “productive” talks with the Iranians. New details suggest those talks are actually being led by Middle Eastern officials.

• According to reports, the foreign ministers of Turkey, Egypt, Saudi Arabia, and Pakistan are trying to drive talks with the Iranians forward, but they’ve struggled to locate a high Iranian official to engage with. They and the US now appear to think the speaker of Iran’s parliament, Mohammad-Bagher Ghalibaf, would be a viable interlocutor, but Ghalibaf has said Iran isn’t ready to talk. In any case, reports say Ghalibaf also fears that if he comes out of hiding for talks, he would be assassinated by the US or Israel.
• With Middle Eastern producers such as Aluminum Bahrain and Qatalum cutting output amid energy and shipping disruptions related to the war, new reports say global automakers are starting to engage in “panic buying” on fears that aluminum supplies could run out within months. Naturally, the result will likely be continued upward pressure on prices on top of the price pressures already hitting crude oil, natural gas, and fertilizers.
• Meanwhile, several major purchasing managers’ indexes from around the world today are pointing to a broad risk of “stagflation” because of the war (see tables in the data section below), with overall growth weakening and the subindexes on prices surging.

European Union-Australia: European Commission President von der Leyen and Australian Prime Minister Albanese yesterday signed a free trade agreement designed to shield their economies from the increasingly nationalist and protectionist policies of the US and China. The deal will drop bilateral tariffs and onerous regulations on a wide range of exports. The EU and Australia also signed several security deals, including one with a provision allowing Australian firms to participate in the EU’s big new rearmament program.

Italy: In a referendum yesterday, right-wing Prime Minister Meloni lost her bid to achieve several judicial reforms that critics said would have undermined the rule of law. With almost all ballots counted, the constitutional amendments were rejected by 53.7% of voters. Turnout was also unexpectedly high, with nearly 59.0% of registered voters taking part in the election. The results will likely weaken Meloni’s political power to some extent, although she is in no danger of being ousted.

US Labor Market: A new survey of corporate chief financial officers indicates that artificial intelligence had essentially no effect on employment in 2025 and will spur companies to trim only a small number of their overall jobs in 2026. In future years, however, the surveyed CFOs believe AI could prompt more significant job cuts for people in routine, clerical, and administrative roles such as bookkeeping and customer service, while workers with sophisticated technical skills, such as engineers and architects would more likely see their jobs enhanced.

US Air Travel Industry: As the Transportation Security Administration continues to shed workers and airport security lines continue to lengthen, angering travelers, Senate Minority Leader Chuck Shumer last night said Democratic and Republican leaders in the chamber are approaching a deal that would fund most parts of the Department of Homeland Security, including the TSA, but would still not provide funds for the Enforcement and Removal Operations branch of Immigration and Customs Enforcement.

• If consummated, the evolving deal would help end an increasingly disruptive situation for the US airline industry and avoid an additional political threat for the Republicans ahead of the Congressional midterm elections in November.
• Funds for that portion of ICE would still be held up over Democratic-Republican disputes over the conduct of immigration enforcement raids.

US Private Credit Industry: Apollo Global Management has become the latest major investment firm to limit withdrawals from one of its private-credit funds. According to Apollo, investors in its Apollo Debt Solutions BDC had requested to withdraw 11.2% of the $15-billion fund, triggering a rule limiting the withdrawals to 5.0%. As with similar incidents at other firms, this one shows how investors have suddenly soured on private-credit investments but have discovered just how illiquid they can be, triggering even more redemption requests.

US Prediction Markets: In response to the introduction of a bill in Congress to outlaw contracts on sports in prediction markets, as we reported yesterday, sources say Kalshi plans to block athletes, coaches, and officials from betting on their sports and to block political candidates from trading on their campaigns. The move shows that the prediction-market industry has finally seen that insider trading could throw it into reverse and is now moving more aggressively to address the issue.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with an update on the Iran war and the US’s apparent retreat from its threat to target Iranian energy infrastructure. We next review several other international and US developments with the potential to affect the financial markets today, including evidence that the Iran war is prompting a rethink about the value that green energy could have in a world of disrupted fossil fuel supplies and new administration efforts to end the long security lines at US airports.

Iran War: In a dramatic statement this morning, President Trump said the US will postpone further military attacks on Iranian power plants and energy infrastructure for five days because Iran had entered “productive” talks with Washington. The announcement marks a major pivot after the president on Saturday night gave Iran a 48-hour deadline to provide ships free passage through the Strait of Hormuz, after which the US would bomb Iran’s power plants. In response, global energy prices are plunging so far this morning, while equity prices are surging.

• In response to Trump’s threat over the weekend, the Iranian government had warned that it would respond to an attack on its energy facilities by targeting “all energy, information technology, and desalination infrastructure belonging to the US and the Israeli regime in the region.” That had sparked a surge in energy prices and threatened major stock losses, suggesting the president backed down in response to market reactions. Iranian officials today denied that Washington and Tehran are in talks to end the conflict.
• Trump’s ultimatum and the Iranian response encapsulate the maximum risks arising from the war. Iran’s effective closure of the strait was long seen as almost unthinkable; it has now happened. The threats on both sides to target basic civilian services such as energy and water signal an even worse step — what would essentially be unrestrained, all-out war. Since the start of the war, the Iranian government has likely felt it is facing an existential risk. Now, that’s even more likely and could prompt them to respond in kind.
• The weekend also brought unsettling evidence of the broad military capabilities Iran could still bring to bear against the US, Israel, and their allies. Reports indicate Iranian missile and drone attacks in the region are actually increasing again, suggesting the US and Israel haven’t been able to degrade the Iranian military as much as they say. Iran also launched missiles against US forces in Diego Garcia, thousands of miles into the southern Indian Ocean, showing that Iran could now hit targets as far away as London and Paris.
• Indeed, in some respects, the war has already strengthened Iran, despite all the damage its military has taken. For example, it is increasingly negotiating with individual countries, including Japan, to allow their ships to pass through the strait unmolested. That essentially positions Iran as master of the strait, with an unprecedented ability to punish or reward firms and nations around the globe.
• Military analysts and commentators also increasingly worry that the Iranians will be prompted to act more viciously because of unclear messaging from the US. For example, President Trump’s threat to attack Iran’s energy plants came less than a day after he said he was thinking of “winding down” the war. Shifting, inconsistent messaging from the US could make it even harder to reach an eventual ceasefire.

China: According to the Financial Times, the share prices of China’s top manufacturers of batteries and energy storage equipment have surged since the start of the Iran war, adding at least $70 billion to the combined market capitalization of firms such as CATL, BYD, and Sungrow. The jump in the companies’ values reflects expectations that no matter how the war wraps up, the disruptions to energy and other commodity shipments from the region so far will likely prompt renewed interest in green energy technology and the need for energy storage.

China-Vietnam: The Vietnamese government on Saturday formally complained about China’s renewed efforts to expand and exploit islets in the disputed Paracel Islands in the South China Sea. China’s recent activities there have focused on an islet called Antelope Reef. It’s unclear why China has recently ramped up its dredging and reclamation activities in the area, and its activities to date suggest the reef could become China’s largest outpost in the area.

Cuba: The government announced on Sunday that the national power grid had again collapsed, creating the second nation-wide power outage in the last week. Power was reportedly restored to much of the country by late yesterday, but the fragility of the grid and growing popular anger at the government suggest the US could be tempted to pivot toward further economic pressure on Havana as it reaches the limits of its war against Iran.

France: In the second and final round of municipal elections yesterday, the far-right populist National Rally managed only mixed results, as it won the mayor’s office in the country’s fifth-largest city, Nice, but fared poorly in other large cities. Despite its surging popularity in recent years, the party continued to see its strength largely limited to smaller cities and rural areas in the south. That raises questions about how well the party will fare in the presidential elections that are due next year.

Italy: State-controlled Poste Italiane yesterday offered 10.8 billion EUR ($12.5 billion) in cash and stock for Telecom Italia, and the target firm’s CEO, Pietro Labriola, expressed his support for the deal because it would produce a telecom “national champion” for Italy. Against a backdrop of concerns about Europe’s economic competitiveness, the development suggests that some firms and national governments may adopt the strategy of building big, dominant companies that in theory could compete better in global markets.

US Airline Industry: Over the weekend, The New York Times scooped that Senator Markwayne Mullin, the Oklahoma Republican chosen by President Trump to be the next homeland security secretary, has been negotiating for weeks with centrist Rep. Josh Gottheimer (D-NJ) on terms to end the Homeland Security shutdown.

• Mullin and Gottheimer are reportedly negotiating on terms that would include requiring federal immigration agents to obtain judicial warrants “for forced home entry, unless in hot pursuit,” and effectively barring civil immigration enforcement actions at sensitive locations, including hospitals, churches, schools, and polling places.
• It isn’t clear whether the talks could really produce an end to the standoff and allow Transportation Security Administration employees at airports to get paid again. However, increasingly long security lines at the airports are raising pressure on the administration and Congress to reach a deal.
• Separately, President Trump at the weekend said Immigration and Customs Enforcement agents would start helping out at airport security lines today to help reduce the long security lines at airports. Again, however, it isn’t clear exactly what the ICE agents will be doing or how much they could speed up the lines.

US Prediction Markets: Two senators today plan to introduce legislation that would prohibit entities regulated by the Commodity Futures Trading Commission, including prediction-market exchanges Kalshi and Polymarket, from listing contracts related to sporting events. The move reflects growing concern about sports-betting scandals, impacts on young people, and states’ rights issues. At this point, it’s unclear how likely the bill could be passed into law.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our views on the latest central bank rate decisions and their implications for the dollar. We then examine why the US and Israel may be seeking a way to transition the conflict into its next phase. In addition, we discuss why Washington has ruled out an export ban and highlight fresh signs of distrust between the US and its allies. As always, we also include a summary of recent US and international economic data releases.

A Global Pause: In the same week that the Federal Reserve signaled that it would not rush to judge the war’s impact on the US economy, several other major central banks followed suit. On Thursday, the Bank of Japan, the Bank of England, the European Central Bank, and the Bank of Canada all kept policy rates on hold. Their decisions reflect uncertainty about whether the conflict will have a short- or long-term effect on inflation and the economy, and these decisions are expected to shape market views of the dollar.

• The choice to remain on hold comes as central banks grapple with the severity of the war’s impact on the economy. ECB President Christine Lagarde stated that while she believes the EU can absorb economic shocks, she is no longer confident that the economy remains in a strong position. Additionally, Bank of Canada Governor Tiff Macklem noted that the Middle East conflict has increased downside risks to the global economic outlook.
• That said, there are signs that some central banks may pivot toward additional rate hikes if inflation shows signs of re‑accelerating. Bank of Japan Governor Kazuo Ueda has reiterated that the bank still expects to raise interest rates, judging inflation risks to be more pressing than growth concerns. At the same time, the Bank of England has adopted a more hawkish tone, signaling a renewed focus on inflation risks in its policy deliberations.
• A potential shift in monetary policy is also likely to influence foreign exchange markets. When investors expect foreign central banks to adopt a more hawkish stance than the Federal Reserve, their currencies tend to appreciate against the dollar, and the reverse is true when they are seen as more dovish. As a result, the dollar could weaken if other central banks are viewed as more assertive than the US in responding to inflation.
• Futures markets have so far priced in a hawkish pivot globally as investors react to rising inflation risks. Following the recent central bank meetings, futures now imply that the US has shifted from one rate cut to holding steady, while expectations for the BoE and ECB have moved from unchanged policy to as many as two hikes this year. By contrast, the implied probability of a rate hike by year-end for the Bank of Canada and the Bank of Japan has remained largely unchanged.
• In the near term, the dollar is likely to find support as investors raise cash and seek safety amid sharply higher oil and energy prices. However, this strength could fade once the conflict begins to stabilize, particularly if the Federal Reserve rules out the possibility of further rate hikes. In that scenario, a weaker dollar could re‑emerge over time, depending on how the situation in Iran evolves in the coming weeks.

US Reinforcements: Now entering its third week, the conflict with Iran appears to be shifting into a new phase. On Thursday, the Pentagon submitted a $200 billion supplemental funding request to the White House to continue ongoing military operations. At the same time, several US allies pledged formal support for Washington’s efforts to secure and reopen the Strait of Hormuz. The shift follows Israeli assessments that the campaign has effectively destroyed much of Iran’s uranium enrichment and ballistic missile infrastructure.

• The proposed surge in defense spending is expected to receive a cool reception on Capitol Hill. Defense Secretary Pete Hegseth said the funds would be used to replenish critical weapons and ammunition expended in the campaign, likely pushing stocks above prewar levels. House leaders have signaled that they are prepared to take up the legislation, but its passage is far from assured, given the GOP’s slim majority and Democrats’ outright opposition.
• Internationally, NATO partners appear eager to ease tensions with Washington by committing to help secure the Strait of Hormuz. On Thursday, seven allies — the UK, Japan, France, Germany, Italy, the Netherlands, and Canada — joined a pledge to take appropriate measures to ensure safe passage through the waterway. Although the statement did not explicitly commit naval forces, it signals a growing willingness among these countries to coordinate military efforts to protect vital sea lanes.
• The escalating costs of the war may be pushing the US and Israel toward a point where declaring victory becomes an appealing option. However, whether this happens within days remains unclear, as it would likely require a settlement that leaves the current Iranian regime in place — a prospect that seems improbable given the ongoing attacks. Furthermore, even if a declaration is made, there is no guarantee the conflict will not reignite, particularly given the network of Iranian proxy groups across the Middle East.
• While a de-escalation should reduce geopolitical uncertainty and offer some relief for equities, attention will quickly shift to logistics. Reopening trade routes, restoring production, and preventing a spike in interest rates driven by higher inflation expectations and heavier debt issuance are likely to become key priorities. In this environment, firms that are less energy-intensive and carry relatively low debt burdens should be better positioned to benefit from the transition.

No Export Bans: The White House has so far ruled out imposing a ban on crude oil and natural gas exports to keep domestic energy prices in check. The decision comes as the Trump administration explores ways to cushion households from the economic fallout of the conflict. While an export ban could lower prices at home, it would likely drive them higher globally. The refusal to take that step may increase pressure on Washington to pursue diplomatic off-ramps to the war instead.

NATO Tensions: Denmark was preparing for the possibility of a US invasion earlier this year. The government sent soldiers with explosives to Greenland to destroy a runway near the capital, as well as a former fighter base, if necessary. They were also supplied with blood reserves in case they were forced to confront US forces. This approach was backed by France and Germany, underscoring growing distrust of the US among key allies. We believe this could signal that Europe intends to become less dependent on the US for its security.

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