by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment begins with an analysis of how the US, in its effort to maintain global influence, continues to pressure China’s allies. We then share our insights on the latest FOMC meeting and its potential implications for monetary policy. Next, we discuss the renewed emphasis on strong-dollar policy, recent reports of White House officials engaging with Canadian separatists, and Germany’s attempts to strengthen its energy infrastructure for wartime preparedness. We also include a roundup of economic data from the US and international markets.

US Interventionism: Tensions between the US and Iran intensified on Wednesday after President Trump warned that “time is running out” for an agreement. The president declared that he was sending a naval armada to the region to pressure Iranian leaders into returning to the negotiating table and accepting limits on their nuclear program. This escalation reflects the administration’s increasingly interventionist foreign policy, which seeks to undermine China by exerting pressure on its allies.

• Although the president has not detailed the terms of his desired deal, the US has presented Iran with three core demands for negotiations: a permanent halt to uranium enrichment and the disposal of its current stockpile; strict limits on the range and number of its ballistic missiles; and an end to all support for proxy groups in the Middle East, including the Houthis, Hezbollah, and Hamas.
• At present, there is no indication that Iranian leadership is ready to accept these terms. A primary obstacle remains Tehran’s refusal to dismantle its uranium enrichment program, which it maintains is for civilian use. In direct response to President Trump’s “armada” warning, Iranian Foreign Minister Abbas Araghchi stated on Wednesday that, while Iran remains open to a “fair and equitable” nuclear deal, its armed forces are prepared with “fingers on the trigger.”
• The White House is increasingly drawing on a “Venezuelan blueprint” to counter Chinese influence on its closest allies. Although the United States has already removed Maduro from power, it has warned that further action remains on the table if Caracas continues to defy Washington. At the same time, the administration appears to be pursuing a less militant but still high-pressure approach toward Cuba, restricting access to much-needed oil in an effort to force Havana back to the negotiating table with the US.
• While the US’s more interventionist foreign policies have shown some success in Iran and South America, their potential effectiveness against North Korea remains an open question. Pyongyang stands apart as the one adversary with a proven capacity to retaliate directly against a US attack. Notably, as Washington has ramped up pressure on Venezuela and Iran, there have been signs that Kim Jong Un has redoubled his efforts to build a credible nuclear deterrent.
• The recent pivot in US foreign policy, prioritizing military leverage alongside traditional diplomacy, is expected to provide sustained tailwinds for domestic defense contractors throughout the year. Consequently, allocating capital to defense equities, complemented by strategic positions in precious metals, offers investors a dual hedge against the financial volatility stemming from escalating geopolitical tensions and a fragmenting global order.

 FOMC Pause: The Federal Reserve left its benchmark interest rate unchanged at 3.5–3.75% following its two‑day policy meeting. The decision seems to signal a clear improvement in overall economic conditions, a trend that policymakers expect to continue through at least the first half of the year as new tax cuts take effect. While markets likely viewed the move as a show of confidence, we believe the Fed is also creating space for the incoming chair to set policy according to his own view of the economy.

• The Fed statement showed several notable changes from the previous release. The language now characterizes economic activity as growing at a solid rather than a moderate pace, job gains were described as low rather than having slowed, and the unemployment rate appeared to be stabilizing while inflation remained elevated but not rising. The committee also removed references to downside risks to both inflation and employment outcomes.

• While the statement reflected a more positive outlook, they also suggested that the Fed does not feel compelled to adjust policy at this time. In the press conference, Chair Powell noted broad support for holding rate steady, despite two dissents on the committee. He also did not indicate any concern that current labor market conditions or inflation required additional policy action.
• The neutral tone of the Fed statement and the press conference suggests a committee comfortable maintaining the status quo through the next several meetings. This “steady-hand” approach appears strategic. By holding rates firm, Chair Powell provides his eventual successor, set to take over this summer, the maximum possible flexibility to steer monetary policy. This transition period will allow the incoming chair a clean slate to implement their own vision without being immediately boxed in by inherited momentum.
• Consequently, we anticipate that the Federal Reserve will maintain current interest rates until a new chair takes over. This period of stability should bolster the US dollar, as sustained yield differentials continue to attract foreign capital. Furthermore, this “higher-for-longer” environment is likely to drive a flight to quality, with investors favoring large-cap, established corporations with proven track records of navigating volatility and strong earnings.

Strong-Dollar Policy: Treasury Secretary Scott Bessent dismissed speculation that the US plans to intervene in currency markets to support the yen, saying such action is “not under consideration.” His comments followed a New York Fed “rate check,” a move often seen as a precursor to formal intervention, which had fueled market rumors. Following his remarks, the dollar strengthened while the yen retreated. The episode comes as Japan adopts a strategy of tactical silence in its efforts to stabilize its currency.

 Canada Separatists: White House officials have reportedly met with members of the Canadian separatist movement as tensions between the United States and China continue to rise. The Alberta Prosperity Party, which advocates for the province’s independence, has held three meetings with US officials since April and is seeking a $500 billion credit swap line should a future referendum succeed — though none has yet been scheduled. The White House maintains that no formal cooperation exists.

 Defense Spending Spillover: Germany is exploring ways to utilize its defense budget to bolster energy infrastructure. By leveraging a defense-related debt brake exemption, the government aims to establish a $2.4 billion resilience fund designed to “war-proof” the national energy grid. This initiative highlights how the current European defense buildup is generating significant spillover effects, driving investment into adjacent industrial sectors like energy and civil protection.

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