Weekly Update 06/18/2026: Oil Price Drops as US & Iran Sign Pact; Fed Holds Rates Steady as Warsh Takes Helm
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Domestic Economic News
President Donald Trump signed an interim deal to end the war with Iran and reopen the Strait of Hormuz, speeding up the timeline for the agreement to go into effect. The so-called memorandum of understanding is now in effect, a US official said. Trump told reporters he signed the document at the palace of Versailles near Paris, where he had dinner with French President Emmanuel Macron. Versailles was where leaders of the great powers gathered in 1919 to sign the peace treaty that formally ended World War I. The memorandum had been signed digitally on Sunday by Vice President JD Vance and Iranian Parliament Speaker Mohammad Bagher Ghalibaf, with Trump as a witness, according to a US official. On Wednesday, Trump and President Masoud Pezeshkian of Iran signed, the official added. Under a draft seen by Bloomberg and a version read to reporters by a senior US official on Wednesday, the strait was to rapidly be reopened, after a months-long closing that sent global energy prices soaring. The text also envisions immediate sanctions waivers for Iranian oil. Talks on nuclear issues, and potential further financial gains for Iran, will follow. With the agreement now in effect, attention will turn to the shipping companies that had largely stopped sending their vessels through the strait because of blockades by both the US and Iran. Trump had said earlier the deal would be signed on June 19 to allow for any mines in the strait to be cleared away.
Some oil and gas vessels have begun to cross the Strait of Hormuz, including ships owned by Saudi Arabia’s state tanker giant, in an early sign of the shipping industry responding to the interim US-Iran peace deal. Three laden oil supertankers controlled by Saudi Arabia’s Bahri switched on their signals in the Gulf of Oman on Thursday. Each one, called Shaden, Jaham and Awtad, has been stuck inside the Persian Gulf since the war began. A ship carrying Qatari liquefied natural gas and a Chinese fuel tanker also exited. While transits are still light compared to pre-war levels, the movement of Saudi ships through the crucial waterway is significant as it marks the first large volumes — around 6 million barrels — of Saudi oil to cross the strait since the war began. Traders will be carefully watching to see if other ships that have been stuck in Hormuz will escape in the coming hours and days, potentially releasing a fresh flood of barrels onto the market. More than 100 oil tankers were trapped inside prior to the signing of the interim peace deal, including about 30 supertankers capable of hauling 2 million barrels. Even though anticipation built up toward the agreement signing in recent days, there were no reported and confirmed deals to pick up cargoes from the region. Shipowners were seeking clarity on how the reopening would work before deciding whether to sail through, and brokers said on Wednesday there was a wide gap between shipowners and charterers regarding the prices they’d be willing to accept to book a vessel. Some ship-owning groups have said they’re concerned about the presence of mines in the waterway. Earlier this week, the US published guidance to owners about the assistance it has been offering vessels in crossing via a southern route near the coastline of Oman. The more than three-month closure of Hormuz has curbed access to gas and oil from within the Persian Gulf, with limited shipments going through by vessels that went dark by turning off their transponders to mask their locations, or with approval from Tehran. Brent oil fell below $80 a barrel for the first time in more than three months after the pact was announced.
In US economic news, new residential construction in the US slowed to the weakest pace in six years, driven by a steep decline in apartment projects. Housing starts decreased 15.4% in May to an annualized rate of 1.18 million, federal data released Tuesday showed. That trailed all estimates of economists surveyed by Bloomberg. That decline was led by a 40.2% plunge in multifamily starts. Starts of single-family homes also fell, by 1.9%, to an annualized 882,000 houses. Tuesday’s report shows contractors are still showing restraint as they work down the supply of new homes for sale amid sluggish demand. Many have cut prices and subsidized customers’ mortgage rates to find buyers, while builders also have slowed production of “spec homes,” which are houses built without a signed contract in hand. Total building permits, which point to future construction, fell 0.7% in May to an annualized rate of 1.41 million. Permits for one-family homes rose slightly. President Donald Trump has tried to prod builders to increase home production, hoping to improve affordability ahead of the midterm congressional elections. The president has taken to social media to blast homebuilders for “sitting on 2 million empty lots” and proposed banning institutional investors from buying single-family rental homes. Legislation that would curb investor home purchases, although weakened from its original form, is pending before Congress. All regions saw a drop in construction, except the Midwest. In the South, the biggest homebuilding region, starts fell to the lowest since May 2020, driven by a sharp decline in apartment buildings. The new residential construction data are volatile, and the government report showed 90% confidence that the monthly change ranged from a 25.2% drop to a 5.6% decline.
Initial claims for unemployment insurance fell slightly for the week ending June 13, following a hot start to the summer. An imperfect adjustment process likely contributes to some of the volatility. Continuing unemployment-insurance claims rose again, as is typical for this time of year. Overall, the level of unemployment-insurance claims remains low despite high-profile layoff announcements this year. Initial jobless claims fell by 4,000 on a seasonally adjusted basis to 226,000 for the week ending June 13. Continuing claims jumped by 24,000 to 1.81 million for the week ending June 6, still well below the level registered in the same week last year, but the figure is certainly worth watching to see if it continues to climb in the coming months.
Interest Rate Insight and the Fed
Federal Reserve Chairman Kevin Warsh vowed to restore price stability following his first policy meeting since taking the helm of the US central bank, after officials left interest rates unchanged and signaled growing support for rate hikes this year. “Persistently high prices are a burden for the American people, but the recent past need not be prologue,” Warsh said in his debut press conference as chairman. Officials “are unambiguous and unanimous. This committee will deliver price stability.” At the same time, Warsh played down somewhat the projections from his colleagues showing nine officials foresee at least one quarter-point hike this year, with six anticipating at least two. Another nine expected no move or a cut. “I didn’t hear a ton of conviction” about the forecasts from other officials, he said, noting that many voiced a high degree of uncertainty about their outlook for the economy. Asked about the rate debate at this meeting, Warsh said the committee had “a good family fight.” The new Fed chief, who has been critical of so-called forward guidance, said he declined to submit a rate forecast. The Federal Open Market Committee voted unanimously Wednesday to hold its benchmark federal funds rate in a range of 3.5% to 3.75% in its first gathering under Warsh’s leadership. Treasuries sold off, the dollar rallied, and stocks fell after the decision was announced. Following Warsh’s press conference, traders were fully pricing in a rate hike by October.
In their post-meeting statement, officials said inflation remained elevated and vowed to deliver price stability. They continued to characterize growth as “solid.” Officials also described productivity growth and capital investment as strong. The statement was also shorter than recent post-meeting releases. Its brevity could be a sign of things to come under Warsh, who has promised to shake up the central bank’s communication strategy. Warsh arrived at the Fed last month promising “regime change.” In his opening remarks, he announced the creation of multiple task forces aimed at examining five areas with an eye toward proposing changes to the way the Fed operates. The task forces will address communications, the balance sheet, the Fed’s “use and reliance on existing data sources,” productivity and jobs, and the central bank’s “inflation frameworks.” The groups will include outside experts, Warsh said, and be supported by staff. Responding to questions, Warsh ruled out re-examining the Fed’s 2% inflation target. “I see no reason, until we have reestablished our commitment and ability to deliver on the 2% inflation objective, to revisit that,” he said. Policymakers made several adjustments to the economic forecasts they issued in March, soon after the Middle East conflict began. Policymakers’ median forecast for inflation this year jumped to 3.6% from 2.7%. Their forecast for 2026 core inflation — which excludes volatile food and energy categories — increased, as well, to 3.3% from 2.7%. Officials lowered their median outlook for growth in 2026 to 2.2%, from the 2.4% they forecast in March. Their median unemployment forecast for the end of 2026 fell to 4.3% from 4.4%.
Impactful International News
German investor optimism improved more than anticipated on hopes that a swift end to the Iran war will ease pressure on Europe’s largest economy. An expectations index by the ZEW institute rose to 10.5 in June from -10.2 in May. That’s much more than the -5.5 median estimate of analysts in a Bloomberg survey. A measure of current conditions worsened to -81. “Financial-market experts expect the Iran conflict to be nearing an end,” ZEW President Achim Wambach said Tuesday in a statement. “This is likely to ease the massive pressure on energy prices and inflation, which would benefit energy-intensive industries and private households and would strengthen domestic demand.” Germany’s economy is set to record only slight expansion in 2026 as the Middle East conflict extinguishes the prospect of a sharp rebound from years of stagnation. The Bundesbank sees state spending on defense and infrastructure driving growth of 0.5%. News that the US and Iran have reached an interim deal to reopen the Strait of Hormuz should help soothe nerves. Much hinges on how fast oil flows can be restored, however, with European allies disagreeing that trade can resume by the end of the week, as Trump promised. “Even if the geopolitical situation in the Middle East improves as expected, it will still take some time for the headwinds facing the German economy to subside,” Felicitas Henze, an economist at Deutsche Bank AG, said in an emailed statement. In the meantime, businesses are grappling with higher borrowing costs after the European Central Bank last week lifted its deposit rate to 2.25% from 2%. Markets are still pricing further monetary tightening, betting energy-market disruptions won’t be resolved quickly. Germany could get further support from long-awaited overhauls of the health, tax, and pension systems. With the far-right leading in polls, Chancellor Friedrich Merz last week pledged to press ahead with a set of “big reform tasks.”
The Bank of England held interest rates at 3.75% as it said the recent fall in oil prices was “encouraging,” even while two of the nine policymakers voted for an immediate quarter-point hike over concerns of persistent inflation. External member Megan Greene joined April’s lone dissenter, Chief Economist Huw Pill, in voting for an immediate increase in bank rate to 4% citing the unstable outlook for prices despite the recent truce between the US and Iran. The committee left its guidance unchanged and lowered its estimate of peak inflation to 3.25% in the fourth quarter of this year, below the 3.6% it had projected in April. “Oil prices have fallen in recent days and that’s encouraging,” Governor Andrew Bailey said in written remarks alongside the decision. In the paragraph reflecting his own views, he added that “the situation remains unpredictable and there is clearly a risk that energy prices remain elevated for an extended duration.” The pound fell against the dollar, trading around half a percent weaker at $1.3225, the lowest since early April. Traders marginally pared bets on future rate hikes, fully pricing one quarter-point increase this year and around a 30% chance of a second.
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