It’s been a history-making year for Wall Street and the Federal Reserve. Earlier this month, the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) reached all-time highs.
Meanwhile, President Donald Trump’s handpicked successor to Jerome Powell, Kevin Warsh, was officially sworn in as only the 17th chair in the Federal Reserve’s history, since its inception in December 1913. Warsh has wasted little time changing the narrative at America’s foremost financial institution, which holds major implications for Wall Street and investors.
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Fed Chair Kevin Warsh is ushering in a new era at the central bank. Image source: Official Federal Reserve Photo.
There’s, arguably, no issue of greater importance at the moment than inflation. With trailing 12-month inflation vaulting to a three-year high in May, the newly updated June inflation forecast from the Federal Reserve offers a good news-bad news scenario for Wall Street.
The Iran war has sent prices soaring
Although President Trump’s tariffs are a lingering concern in the goods sector, the bulk of America’s inflationary pressure can currently be traced to the Iran war.
Shortly after President Trump gave the green light for the U.S. military to attack Iran, the latter closed the Strait of Hormuz to commercial vessels. This action-and-reaction halted the daily transport of approximately 20 million barrels of petroleum liquids, representing a fifth of the world’s demand.
As you can imagine, removing 20% of the world’s crude oil supply overnight had quite the impact on energy prices. Gas prices soared at the fastest pace in more than three decades, while diesel prices jumped by an even steeper percentage.
In three months, TTM inflation has increased from a modest 2.4% to the aforementioned three-year high of 4.2% in May. Consumers are feeling this pressure in their pocketbooks, and the central bank has taken notice.
Image source: Getty Images. The latest June inflation forecast is a mixed bag
However, the Federal Reserve Bank of Cleveland’s proprietary Inflation Nowcasting tool offers something of a silver lining for June. This inflation forecasting tool updates daily, Monday through Friday, following the release of new economic data.
According to the Cleveland Fed (as of June 18), TTM inflation for June is expected to modestly decline to 4.01%. Crude oil prices have tapered noticeably as peace talks between the U.S. and Iran have progressed. Since energy prices have been the primary driver of inflation, lower oil prices can provide some relief to consumers.