US stock markets fell on Wednesday as the US continued strikes on Iran and the Federal Reserve flagged concerns that would warrant higher interest rates. The Dow Jones Industrial Average dropped 1.09%, or 500 points, at closing. The S&P 500 saw a small loss while the tech-heavy Nasdaq rose slightly.
Oil prices surge after Trump declares ceasefire over
Donald Trump’s declaration at the Nato summit in Ankara that the Iran-US ceasefire is over sent oil prices sharply higher on Wednesday. Brent crude, the global benchmark, jumped more than 5% to crest $80 a barrel. Global stocks had fallen earlier in the day, with the UK’s FTSE 100 down 1% as Japan’s Nikkei fell 2.1%.
Trump criticizes Iran at Nato summit
At the Nato summit in Turkey, Trump criticized Iran’s leadership, calling them “sick people”, and said that he was “very upset” with the country’s military alliance with Spain. “As far as I’m concerned, it’s over,” Trump said, though he said that US negotiators wanted to continue talks.
IMF lowers global growth forecast
The economic impacts of the Iran war have reverberated across the globe. On Wednesday, the International Monetary Fund lowered its global economic growth forecast to 3%, down from 3.1% in April, citing conflict in the Middle East and pressurized AI spending. Global growth in 2024 and 2025 averaged 3.5%.
Gas prices remain high despite ceasefire
While oil prices fell sharply during the ceasefire, gas prices have remained high. US gas prices at the pump sit at an average of $3.79 per gallon – $0.65 per gallon higher compared with a year ago, according to AAA. US diesel futures also rose 13% on Wednesday after Russia implemented a diesel export ban following a Ukrainian drone strike that hit key refineries.
Inflation hits three-year high
In May, the annualized US inflation rate jumped to 4.2%, a three-year high and more than double the Federal Reserve’s target inflation rate of 2%. Minutes from the last Fed board meeting, released two weeks later, showed that while there was some disagreement over when inflation will ease, there appeared to be little discussion of lowering interest rates in the near future. This is a change from previous Fed meetings, where some officials argued that inflation would be temporary.
Fed minutes reveal rate hike debate
While some officials believe that the current interest rate, set at a target range of 3.5% to 3.75%, could be maintained or even lowered if inflation goes down, others indicated rates would need to be increased before the end of the year to deal with rising inflation, according to the minutes. “Both total and core inflation were higher than their levels a year earlier, a development that the staff attributed to a variety of factors, including the pass-through of past tariff increases, higher energy and input costs stemming from the conflict in the Middle East, and the surge in demand related to the AI buildout,” the minutes said.
Political tensions over interest rates
An interest rate hike is bound to upset Trump, who has demanded the Fed lower interest rates despite elevated inflation. Navigating the tension will be a challenge for the Fed chair, Kevin Warsh, who stepped into the role in May after being enthusiastically nominated by Trump in the spring.
