by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our takeaways from the Senate hearing for the Federal Reserve chair confirmation. We then update the situation in Iran, emphasizing our concerns that the extended truce remains fragile. Next, we discuss the reported unauthorized access to a powerful cybersecurity-focused AI system, outline the EU’s emerging plans to cushion households from rising utility costs, and explain why Canada now feels more confident pursuing trade talks. As always, we include an overview of recent domestic and international economic data.

 Warsh Goes to Washington: On Tuesday, Fed Chair nominee Kevin Warsh faced the Senate Banking Committee for his confirmation hearing. During his testimony, he was pressed with difficult questions about how he would lead the Federal Reserve and manage his relationship with the president. Though his answers remained largely vague and predictable, Warsh did offer a glimpse into how he might change the central bank if he were to take the helm. That said, his confirmation remains far from certain.

• Several lawmakers pressed Kevin Warsh on whether he could remain independent of the White House in setting monetary policy and whether any of his financial investments posed a conflict of interest. He denied that the president had ever pressured him to cut interest rates and said that if such pressure arose, he would refuse. Additionally, he stated that he is prepared to divest from any holdings flagged by ethics officials. His assurances appeared to be sufficient to satisfy most on the committee.
• Warsh also fielded questions about how he would manage the Fed’s day‑to‑day operations and its balance sheet strategy. He offered few specifics, but suggested the central bank should rethink its communications approach, hinting at possible changes to press conferences and forward guidance. He also signaled support for aggressively reducing the Fed’s balance sheet, a stance shared by some other FOMC members, including Fed Governor Stephen Miran.
• Warsh’s testimony raised no major alarms, but his confirmation remains uncertain. Senator Thom Tillis has vowed to block a committee vote until the Justice Department’s investigation into Chair Jerome Powell concerning the costly headquarters renovation is resolved. Tillis said he wants to support Warsh, but only if the “vindictive” prosecution of Powell ends. Though Tillis has suggested shifting oversight of the renovation to Congress, the White House backs the Justice Department’s probe, leaving Warsh’s nomination on hold.
• A delay in Kevin Warsh’s confirmation could extend Jerome Powell’s tenure at the Federal Reserve, as Powell has indicated he would serve as chair pro tempore if a successor is not in place when his term ends. In that scenario, the White House could intensify efforts to remove him, further heightening concerns about presidential influence over Fed policy and, in turn, adding to financial market volatility. We remain cautiously optimistic that cooler heads will prevail, and the confirmation will proceed on schedule.

 Iran Truce Extended: The White House announced it has extended the cease-fire with Iran indefinitely to keep negotiations on track. President Trump explained that this extension reflects internal divisions within the Iranian government, which have thus far prevented a final agreement. Iran, however, maintains that the deadlock persists due to its refusal to hold talks while the US continues its naval blockade in the strait. Although the extension has increased confidence that conflict will not resume, the truce remains fragile.

• The decision to extend the talks comes as both sides seek to prevent further fighting while they review each other’s proposals. The move to allow a grace period follows Vice President JD Vance’s cancellation of his planned trip to Pakistan for negotiations, after Iran signaled reluctance to proceed with the meeting. For now, the White House has emphasized that it is waiting for Iran to submit a new proposal.
• Although markets have breathed a sigh of relief that the US has not resumed strikes on Iran, it remains unclear how long the current truce will hold. On Wednesday, Iran attacked three ships and seized two that were transiting the Strait of Hormuz, in what appears to be retaliation for a US operation against an Iranian vessel over the weekend. The attack has likely called into question whether or not the ceasefire will hold.
• One of the main obstacles to a deal appears to be the growing influence of Iranian hardliners over the negotiation process. Reports suggest that the Islamic Revolutionary Guard Corps has effectively sidelined President Masoud Pezeshkian and assumed control over key state functions in Tehran. If confirmed, this would mark a significant escalation, implying that moderates have less say in the talks, which could increase the risk that fighting between the US and Iran will resume.
• Recent weeks have seen markets adopt a more optimistic view of the conflict, and any further signs of diplomatic progress should help sustain that momentum. That said, a sudden breakdown in talks and/or renewed fighting would likely deliver a sharp blow to risk sentiment. While growth stocks have performed well as tensions have eased, we continue to see a compelling case for value given the high level of market uncertainty surrounding the conflict.

 Anthropic Breach: The company believes unauthorized users may have gained access to its newest AI system, Mythos. The breach has heightened concerns that a malicious actor could exploit the model to enhance or automate cyberattacks. Anthropic has kept Mythos tightly restricted amid internal worries that its capabilities are powerful enough to pose meaningful safety risks if misused. Although there is no confirmation that a bad actor actually accessed the system, the prospect of an AI‑enabled cyberattack remains a serious market risk.

 EU Energy Package: The EU is preparing an emergency energy package that would give national governments more scope to shield households from rising energy prices. The bloc is encouraging member states to rely on existing rules, or introduce targeted adjustments, that would allow them to borrow more in order to finance subsidies to help households cover power bills. While this should provide some support to growth, it is also likely to push public debt higher, adding to upward pressure on euro-area government bond yields.

 Canada Trade Deals: After securing a parliamentary majority, Canada is weighing separate trade deals with the United States and China. Prime Minister Mark Carney argues that the majority gives him the mandate to reopen USMCA negotiations with the US and Mexico, set for review on July 30. Meanwhile, he faces domestic pushback on a potential China trade deal over fears it could hurt Canada’s manufacturing base. Holding talks with both economic powers could boost Canada’s leverage in each negotiation.

View PDF