Oil futures are trading near $100/barrel, significantly below the $125-$130 price implied by the current 10 million barrel/day supply disruption. This price gap indicates a strong market consensus that the conflict will end quickly and production will resume.
Kevin Warsh's confirmation hearings suggest a potential regime change at the Fed. He has indicated possible shifts in how inflation is measured (using trimmed mean), the size of the balance sheet, and a reduction in market communication like forward guidance.
While monetary policy gets the headlines, the Fed's role as the key regulator of the financial system—influencing bank capital, liquidity, and lending practices—arguably has a more direct and significant influence on the real economy than interest rate decisions.
The Iran conflict has revealed the vulnerability of the Strait of Hormuz. Even after the strait reopens, oil prices are unlikely to return to pre-conflict levels. A new, persistent risk premium of up to $20/barrel will be priced in to reflect this ongoing geopolitical threat.
A 22% year-over-year rise in business bankruptcies seems alarming, but it's partially a natural consequence of the post-pandemic surge in new business formations. A higher number of startups leads to more failures, reflecting entrepreneurial churn rather than just economic weakness.
An overlooked consequence of the Mideast conflict is a 40% price increase in sulfur, a key byproduct of regional oil refining. As half of seaborne sulfur comes from the Gulf, this surge creates knock-on inflation risks for critical sectors like agriculture (fertilizers) and industry (metal production).
The intended effect of tariffs—reducing imports—is being obscured by an enormous, tariff-insensitive surge in demand for AI chips, which are almost entirely imported. This single category's growth is offsetting declines in other areas, complicating any analysis of the trade policy's effectiveness.
Despite elevated oil prices, U.S. producers have not increased drilling activity. This inaction reflects their focus on futures prices, which signal a quick end to the conflict. They are unwilling to make long-term investments for what they perceive as a short-term price spike.
The potential bailout of Spirit Airlines highlights a debate over a key U.S. economic advantage: the ability to let businesses fail. Propping up 'zombie companies' misallocates scarce resources and harms healthier competitors, undermining the dynamic reallocation of capital that drives long-term productivity and growth.
Analysts question the value of the Fed's dot plots, which show individual governors' rate forecasts. The plots can cause market volatility and confusion, especially when the final rate decisions are unanimous, suggesting the forecasts overstate internal dissent and create unnecessary noise.
Unlike broad tax cuts, targeted fiscal policy can be revenue-neutral. Increasing the capital gains tax exemption for home sales could incentivize more transactions, unlocking housing inventory. The resulting economic activity could generate enough new tax revenue to offset the initial cost of the tax cut.