by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with an analysis of the next phase of the conflict following the cease-fire agreement. We then examine the latest FOMC meeting minutes and their implications for monetary policy. Other discussions include the inroads that the US is making in South America, the potential impact of low fertility rates on economic growth, and signs of backlash against higher energy prices in the EU. As always, we include a summary of recent domestic and international economic data.

The New Phase: A day after the United States and Iran agreed to a two‑week ceasefire, it remains unclear whether the lull in fighting will hold, as early signs suggest both sides are not fully adhering to the deal. On Wednesday, Saudi Arabia reported that its east‑west pipeline had been struck by Iranian drones, while Israel has continued its strikes against Hezbollah targets in Lebanon. The uncertainty has not derailed the planned talks scheduled for Friday, but it has prompted Iran to impose additional restrictions on shipments transiting the Strait of Hormuz.

• The renewed hostilities appear to be driven in part by factions that never fully embraced the ceasefire. Vice President JD Vance has said the US–Iran agreement applied only to Iran, not Lebanon, underscoring Washington’s view that Israeli operations against Hezbollah can continue under the deal. At the same time, Iran-aligned proxy groups are widely suspected of being behind continued drone and missile attacks on Gulf states and regional infrastructure.
• The ongoing attacks have raised the stakes for both sides ahead of Friday’s talks. It appears that Washington and Tehran are exploring an arrangement to jointly oversee trade through the Strait of Hormuz, with Iran reportedly pressing for a $1 per‑barrel transit toll paid in crypto‑assets and the United States floating a joint‑venture structure that would also entitle it to a share of shipping fees.
• The talks also appear likely to center on Iran’s nuclear program. Vice President Vance, who is set to lead the US delegation on Friday, has stressed that Washington’s stance on uranium enrichment remains unchanged, with meaningful sanctions and tariff relief conditioned on strict limits that prevent Tehran from obtaining a nuclear weapon. Meanwhile, Iran’s 10‑point proposal asserts its right to continue uranium enrichment, which underscores the significant gap that negotiators will need to bridge at the table.
• Additionally, Europe is expected to play a major role in helping secure the strait. The US has asked a UK-led coalition of European allies, as well as Canada and Japan, to present a plan to help manage the strait. At the same time, Iran has pushed for Europe to help ensure that the US and Israel are able to follow through on their commitments to the ceasefire. Europe, which had previously agreed to assist in keeping the strait open prior to the ceasefire, has also backed Iran in its effort to stop attacks in Lebanon.
• Although market sentiment has improved, a sustained recovery will ultimately depend on companies’ earnings outlooks, particularly as they offer insight into their overall exposure to the conflict and how they plan to address these vulnerabilities. In this environment, we think firms that have a solid history of having resilient earnings as well as those who issue dividends should do well as investors are likely to start to prioritizing value over growth.

 Fed Divided: The latest FOMC meeting minutes revealed that Fed officials remain divided on how best to approach policy going forward. While most officials seem to favor holding rates steady for now and cutting later in the year, there was pushback from some members over whether there should be a reference to the possibility of a rate hike, given that inflation continues to run above target. The wide range of opinions reflects the reality that Fed policy could change quite radically over the next few months, depending on the data.

• The main concern stated by Fed officials was the trajectory of inflation. Many argued that price pressures had not eased enough to justify cutting rates even before the recent conflict. They paid particular attention to core goods and especially core services, with the latter seen as more worrisome given its historical stickiness. Others expressed confidence that the adoption of new technologies and ongoing deregulation could lift productivity over time, helping to relieve some of the upward pressure on prices.
• Views on the labor market also appear somewhat divided. Some committee members have voiced concern that job gains remain relatively modest and are concentrated in sectors such as education and health services. Others have emphasized that the unemployment rate has changed little and argue that recent payroll growth is broadly consistent with a cooling labor market and slowing labor‑force growth, suggesting conditions are roughly in line with expectations.
• On the Middle East conflict, Fed officials commented on the risks but acknowledged it was too early to draw firm conclusions. They noted that the recent spike in oil prices could complicate progress toward the 2% inflation target, while also warning that higher energy costs might weaken the labor market by squeezing household consumption. In all, there seems to be more concern with the potential downside risk to employment, even as officials recognized the twin risks of higher inflation and softer labor conditions.
• The latest minutes suggest the Fed is inclined to keep policy on hold for now, while preserving the option to cut rates later if conditions warrant. The officials note the possibility of further tightening but offer little indication if the committee is seriously considering a rate hike this year. This stance is likely to cap further upside in the dollar, especially as other major central banks, including the Bank of Japan and the ECB, appear to be gradually tilting in a more restrictive or less dovish direction.

US-Ecuador: In a sign of Washington’s growing clout in South America, Ecuador has moved to deepen security cooperation with the United States. In a recent interview, President Daniel Noboa said he would support the deployment of US troops in the country to help combat powerful drug cartels. His comments underscore Washington’s efforts to rebuild influence in the region and tighten security ties, which over time could translate into increased US investment and broader market opportunities across South America.

Low Fertility Rates: US fertility fell to a record low in 2025, signaling that population growth is continuing to slow. The decline largely reflects women having children later in life, which tends to reduce lifetime birth rates. Combined with tighter immigration policies, a persistently low birth rate is likely to slow overall population growth, making the economy increasingly reliant on gains in productivity rather than demographics to drive long‑term output.

Energy Outrage: The rise in energy prices has begun to trigger public backlash in Ireland. Protesters have blocked oil refineries in an effort to force officials to address the soaring energy costs that are being driven by the conflict. This outrage reflects the growing pressure that European lawmakers face as they try to soften the impact of higher energy prices. In our view, this could lead to increased efforts to offer subsidies aimed at reducing cost pressures, but it might also prompt the EU to loosen regulations to allow more mining and drilling.

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