This week, the New York stock market is expected to focus mainly on the signing of a memorandum of understanding (MOU) to end the war between the United States and Iran, and the Federal Reserve's Federal Open Market Committee (FOMC) regular meeting on June 16-17. In particular, this FOMC meeting has drawn high market interest as it is the first to be chaired by Chairman Kevin Warsh. Although Warsh took office backed by President Donald Trump's expectations for a base rate cut, market participants are leaning toward the view that delivering this from the very first FOMC meeting will be difficult. This is because oil prices, which surged after the war, and the inflation reflecting them are far more serious than problems in the U.S. labor market. This FOMC meeting also includes the release of the dot plot — a chart published quarterly that marks Fed members' interest rate forecasts as dots — making it an occasion to gauge how significantly the rate path that Fed members envision for this year has changed since the Middle East war. If the year-end rate level that Fed officials anticipate is the same as the current level or higher, the stock and bond markets could be shaken once again. In that case, President Trump and the Fed could once again fall into a conflict relationship, as in the era of former Chairman Jerome Powell.
"End-of-War MOU via Electronic Signature"... Iran Denies the 14th, 'Trump's Birthday'
The New York stock market this week is also expected to be heavily influenced by developments in the MOU signing between the United States and Iran. President Trump posted on his social network service Truth Social on June 13, claiming, "I will sign the agreement with Iran on the 14th," and "Immediately after signing, the Strait of Hormuz will be open to everyone." Trump stressed, "Iran no longer wants nuclear weapons and will not possess them in any form," adding, "Unlike former President Barack Obama's administration, which paid Iran hundreds of billions of dollars including 1.7 billion dollars in cash, no money will change hands this time." He went on to warn, "We will secure the 'nuclear dust' (highly enriched uranium) buried deep within solid granite mountains and dilute or destroy it, whether in Iran or the United States," and "We have a last resort that we never hope to use again." It was a repeated threat to use military means again if Iran once more fails to agree to the end-of-war plan in the manner he desires.
In response, the U.S. online media outlet Axios reported that the two countries are expected to hold a video conference on the 14th together with mediator countries Pakistan and Qatar and sign the MOU electronically. The outlet said the MOU contains provisions to extend the ceasefire by 60 days while opening the Strait of Hormuz and to begin negotiations related to Iran's nuclear program. The 14th is also President Trump's 80th birthday. Trump was born on June 14, 1946, in Queens, New York. On his 79th birthday last year, Trump stirred controversy by holding a large-scale military parade in Washington, D.C.
Major foreign media initially expected the two countries' chief negotiators, U.S. Vice President JD Vance and Iranian parliament Speaker Mohammad Bagher Ghalibaf, to meet in Geneva, Switzerland, to sign the agreement, but Axios explained that the format was switched to electronic signature due to circumstances within the United States. The logic was that Vice President Vance could not be away because Trump is scheduled to attend the Group of Seven (G7) summit held in the resort town of Évian-les-Bains on the 15th-17th.
On this matter, Iranian Foreign Minister Abbas Araghchi also said on a state TV talk program on the 12th, "This agreement will be signed and announced as soon as the final stage of negotiations is completed," and "The signing will be done digitally, remotely." Pakistani Prime Minister Shehbaz Sharif, the prime minister of a mediator country, also introduced via X (formerly Twitter) that day, "A final agreement is expected to be reached within 24 hours," and "We are preparing to proceed immediately with the electronic signing of the agreement."
While Iran has not denied that the MOU signing is imminent, it has reacted negatively to the possibility that the timing will be the 14th. Some in diplomatic circles speculated that Iran may be concerned about a situation in which an end-of-war agreement coinciding with Trump's birthday could be portrayed as a U.S. victory. Iranian Foreign Ministry spokesman Esmaeil Baghaei met with reporters on the 13th and said, "It is not the 14th, but the possibility of signing the MOU within a few days cannot be ruled out," and "The nuclear issue is also scheduled to be discussed within 60 days, so we have decided not to discuss it at this stage." He added, "There are no plans to head to Geneva or elsewhere within the next one to two days," and "Managing safe passage through the Strait of Hormuz is consistent with Iran's national interests and security."
Negotiation Pains Expected for 60 Days Even After Agreement... Market Treats June FOMC 'Rate Hold' as a Given
The financial market currently has substantially priced in expectations for progress in the end-of-war agreement between the United States and Iran. The New York stock market, which plunged on the 10th after Iran shot down a U.S. Apache helicopter, rebounded sharply on the 11th when Trump halted retaliatory strikes. The three major New York stock indexes — the Dow Jones Industrial Average (0.70%), the Standard & Poor's (S&P) 500 (0.50%), and the Nasdaq Composite (0.31%) — continued their upward trend on the 12th on end-of-war expectations. On the 12th, August-delivery Brent crude futures fell to 87.33 dollars per barrel on London's ICE Futures Exchange, and July-delivery U.S. West Texas Intermediate (WTI) crude futures fell to 84.88 dollars per barrel on the New York Mercantile Exchange, dropping to their lowest levels since March 5 and April 17 of this year, respectively.
Even after the MOU is signed, the core conditions for ending the war — scrapping Iran's nuclear program, processing highly enriched uranium, lifting sanctions, and rebuilding Iran's economy — will be addressed as negotiation agenda items over 60 days. Both the United States and Iran are likely to continue a tedious war of nerves to extract the best possible outcome. It is also uncertain whether the Strait of Hormuz will be fully opened to the pre-war level, when there were no transit fees.
Another variable the market is watching this week is the Fed's FOMC meeting on June 16-17. According to the Chicago Mercantile Exchange (CME) FedWatch Tool, the federal funds rate futures market is pricing in a 97.4% probability that the Fed will hold the base rate at the current 3.50-3.75% at this FOMC meeting. The probability of a 0.25 percentage point rate cut is only 2.6%. The atmosphere effectively treats a rate hold as a given.
Market participants are focusing more on the dot plot the Fed will present. This stems from the expectation that the possibility of a rate cut within the year could disappear altogether. As recently as the March 17-18 FOMC meeting, Fed members presented a median year-end rate of 3.4%, the same as at the December 9-10 meeting last year. This means Fed members on average saw room to lower the base rate one more time within this year. At the time, it was the early phase of the Middle East war, so the perception that the rise in international oil prices could be a temporary phenomenon was stronger.
The mood within the Fed regarding the rate path has changed significantly since then. In fact, three officials — Dallas Federal Reserve Bank President Lorie Logan, Cleveland Fed President Beth Hammack, and Minneapolis Fed President Neel Kashkari — supported holding rates at the April 28-29 FOMC meeting but dissented on the Fed statement that hinted at an easing stance, such as the "further adjustments" phrasing. The Fed also stated in the minutes of that FOMC meeting, released on the 20th of last month, "A majority of participants emphasized that some policy firming (rate hike) would likely be appropriate if inflation persistently exceeds 2%," and "To respond to this possibility, many participants preferred to remove the statement's phrasing implying an 'easing bias' regarding the committee's future direction on rate decisions."
Under Price Pressure, Year-End Rate Cut Chances May Vanish in Dot Plot... Kevin Warsh's First Press Conference Message in Focus
Fed members made a series of even more strongly hawkish (favoring monetary tightening) remarks after the April meeting. Fed Governor Lisa Cook stressed at a forum at Stanford University's economic policy research institute in California on the 27th of last month, "It is clear that the risks of inflation remain high," and "If disinflation (a slowing of the inflation rate) does not appear in a timely manner, I am ready to raise rates." Fed Governor Christopher Waller, who was classified as a representative dove (favoring monetary easing) during his time as a candidate for the next Fed chair, also changed his stance, saying in a lecture in Frankfurt, Germany, on the 22nd of the same month, "If inflation does not calm down soon, I will not rule out the possibility of a rate hike." President Kashkari and Boston Fed President Susan Collins also publicly stated on May 13, "We must keep the possibility of a rate hike open."
The change in their perception was strongly underpinned by the prolonged Middle East war and the resulting unstable price indicators. The May Consumer Price Index (CPI) released on the 10th of this month and the April Personal Consumption Expenditures (PCE) price index released on the 28th of last month rose 4.2% and 3.8% year-on-year, respectively, on an all-items basis, marking the highest levels since April and May of 2023, respectively. This was roughly double the Fed's policy target inflation rate of 2.0%. In contrast, the May nonfarm payrolls released on the 5th of this month proved to be very solid.
On the 11th, The Wall Street Journal (WSJ) estimated, based on the May CPI and Producer Price Index (PPI), that the May core PCE price index, which excludes the volatile food and energy categories, rose 3.4% from the same period last year. This is higher than April's 3.3% and the highest level since the end of 2023. The PCE price index is the inflation indicator the U.S. Fed considers most important when deciding the direction of monetary policy.
If the Fed's dot plot at this FOMC meeting presents the possibility of holding or raising rates through the end of this year, this could be a factor that drives down both stock and bond prices. As several members expressed dissatisfaction at the April meeting, the possibility cannot be ruled out that content hinting at a further rate cut will be removed from the statement. According to the FedWatch Tool, the federal funds rate futures market sees a 59.4% probability that the Fed will raise rates through the end of this year and a 39.6% probability that it will hold. As for the European Central Bank (ECB), it already raised its three key policy rates by 0.25 percentage point each on the 11th, the first among major countries to do so. The ECB's rate hike was the first in two years and nine months since September 2023.
Whether rates are held this month or the possibility of a cut disappears in the dot plot, Warsh's position could become awkward in either case. This is because President Trump, for whom economic stimulus and easing the interest burden of national debt are important ahead of the November 3 midterm elections, is still demanding that rates be lowered. This is also why Wall Street cannot take its eyes off how Warsh assesses the Fed's decision at his first press conference after taking office. Meanwhile, the New York stock market will be closed this week on the 19th to mark Juneteenth, the day commemorating the emancipation of slaves in the United States.
※ 'Trump Stocker' is a column delivering on-the-ground stories and analysis of current issues related to U.S. markets, companies, policy, politics, and diplomacy that may be helpful for investment in the era of President Donald Trump. Subscribe to receive useful news from the United States.
