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Inflation, which is the rate at which prices increase, has been slowing down for a few months now. That usually signals good news for the economy and for regular people, as things become more affordable or at least stop getting more expensive. But despite this clear trend, the U.S. central bank, the Federal Reserve, seems hesitant to fully trust this data.
This week, the Federal Reserve’s top committee, known as the Federal Open Market Committee (FOMC), is holding an important meeting that will wrap up tomorrow. Many people in the financial world are hoping the Fed will finally lower interest rates, which would make it easier and cheaper for people and businesses to borrow money. Even if they don’t take action this week, investors and economists are expecting the Fed to at least signal that a rate cut is likely coming during their next scheduled meeting at the end of July.
At the same time, global events are adding a lot of uncertainty to the market. One of the biggest recent developments came from the Middle East, where Israel carried out a massive air attack on several important Iranian sites. These included nuclear production facilities, missile bases, and other key military locations. The strikes have stirred up fears that a full-blown war could break out, especially if Iran decides to retaliate in a big way or if other countries get involved. The situation becomes even more tense with the threat that the Strait of Hormuz, one of the world’s most important oil routes, could be closed off.
As a result of all this, investors are rushing to safer investments. Gold and energy stocks are doing very well right now, acting as reliable places to put money during uncertain times. Government bond yields are also falling around the world because more people are buying bonds as a safer choice when things feel unstable.
Meanwhile, in the stock market, smaller companies have been quietly gaining strength this month. That’s because every June, there’s a regular reshuffling of the major Russell stock indexes. These are used by big investors to track different groups of U.S. companies. When a stock gets added to one of these indexes, it usually sees more demand, since large investment funds start buying it. This year, as always, changes are being announced every Friday, and the final update will come on June 27. Investors expect that many of these newly added stocks will jump in price when trading resumes on Monday, June 30.
The Middle East conflict also carries the risk of drawing the United States further into the fight. Some Iranian missiles have gotten past Israel’s Iron Dome defense system and caused devastating damage to civilians. That raises the chances that the U.S. might step in militarily, especially since it already has B-2 stealth bombers stationed nearby that are capable of carrying massive bunker-busting bombs. These powerful weapons may be the only way to destroy Fordow, Iran’s most protected nuclear site, which is built deep inside a mountain near the city of Qom. So far, Israel has been targeting and killing high-level members of Iran’s Revolutionary Guard and reportedly several nuclear scientists, clearly trying to weaken Iran’s capabilities before things escalate further.
However, the U.S. administration under President Trump appears to be trying to avoid direct involvement. Reports suggest Iran is privately reaching out through Arab nations, asking for a ceasefire and a return to negotiations over its nuclear program. This comes at a time when President Trump is already juggling multiple major issues, including a G-7 meeting that’s underway in Alberta, Canada.
The G-7 summit this year has taken an unusual turn. Although it’s normally a gathering of leaders from the world’s seven biggest economies, the Canadian Prime Minister Mark Carney has expanded the guest list. Indian Prime Minister Narendra Modi was invited, even though relations between Canada and India have been strained since 2023, when former Canadian PM Justin Trudeau accused India’s government of being connected to the killing of a Sikh activist. Leaders from countries like Saudi Arabia, Mexico, South Korea, Brazil, and South Africa were also invited. It’s clear that Carney is trying to turn the event into a broader international gathering, even if he hasn’t officially changed its name.
Back in the U.S., all eyes are on what the Federal Reserve will say tomorrow. A major government report called the Beige Book, which surveys business conditions across the country, showed weakness in most regions. Inflation numbers have also been surprisingly good over the past four months. So, many experts believe the Fed will take a more relaxed or “dovish” tone, possibly hinting at rate cuts ahead. A separate report on retail sales showed a decline of 0.9% in May, and April’s numbers were revised downward too. This marks the first time since late 2023 that retail sales have fallen two months in a row. Several key sectors like construction materials, gasoline, and auto sales were down. Even spending at bars and restaurants took a dip, which suggests consumers are being cautious.
Still, there was one slightly positive detail: if you remove things like gas, cars, and building supplies, core retail sales actually rose 0.4% in May. After the weak retail sales numbers were released, bond yields dropped even further, which is yet another sign that the Fed may need to take action soon to support the economy.
Altogether, the global picture remains shaky. The war between Ukraine and Russia is still dragging on with no clear resolution in sight. The conflict in the Middle East threatens to spiral. And even within the U.S., recent protests, like the “No King” demonstrations, show that public unrest hasn’t gone away, even if things remained peaceful this time.
Despite all of these tensions, the financial markets haven’t fallen into panic. Investors seem to be reminding themselves that while geopolitical threats often sound alarming, they rarely turn into full-scale disasters that derail the economy. That said, everyone is watching closely to see what the Fed decides to do next, and whether the world’s hotspots cool down or get hotter.