Weekly Economic Update: July 14th, 2026
The party’s over — and we’re right back to where we were
With the end of the Fourth of July celebrations, the United States’ 250th birthday and the World Cup wrapping up, it’s time to get back to reality. Last Tuesday, President Donald Trump, while at a NATO meeting in Turkey, declared the ceasefire was over and ordered multiple strikes against Iran in response to Iranian attacks on ships traversing the Strait of Hormuz.1 Markets sold off as oil prices rose and bond yields climbed on Wednesday, a replay of what happened when hostilities began in late February.2,3
Last week, we talked about markets coming back in the second quarter. Will this new phase of the conflict test markets again? And just how resilient will markets be if oil advances back toward $80, $90 or $100 per barrel? So far, oil isn’t moving much after an initial bump, and the market had a hiccup but bounced back. Yields also moved upward again as high inflation lingers.
The good news is that, like in February, the markets were at all-time highs or close to them.4 If we stumble, it won’t feel as bad since we had banked double-digit gains in all three major indices to provide some cushion. If this goes on for long, what will oil prices do and what effect will they have on inflation and interest rates? Those factors will basically dictate what the markets will do in the next month or so.
We had mostly moved on from this conflict, assuming it was over and turning our focus to other (more positive) things. Now that the party is over and the guests (World Cup visitors) are leaving, we’re left with a mess we should have cleaned up before we started celebrating.
Inflationary pressures will keep rates elevated for the rest of 2026
Whatever the speculation may have been about the direction of short-term interest rates prior to the last Federal Reserve meeting — with some advocating for rate hikes while others were for rates remaining the same — last week’s events in the Gulf seem to have put the final nail in the rate-cut conversation for 2026. And the “rates remaining where they are” discussion is on life support, too.
The Fed only controls short-term rates for overnight borrowing but heavily influences other short-term rates (maturities of two years or less). The bond markets move longer-term rates (maturities of more than two years). The best indicator for most folks is the 10-year U.S. Treasury note, which had climbed near 4.60% last week before cooling off.5 The 10-year had been methodically declining since it hit nearly 4.7% in mid-May.
The Fed can’t control the bond market; it can only try to influence longer rates, and right now that influence is weak. What the markets are telling us is that we’re in for higher rates for longer.
The Fed risks getting disconnected from the rest of the market and perhaps falling behind if inflation continues to remain at elevated levels. Once more, we’re in the same spot we were in a few months ago. The conflict with Iran destabilizes oil prices, which puts pressure on prices all around the world, and the bond market reacts. That, in turn, makes stocks less attractive because the cost of borrowing increases for companies and lowers profitability. Higher yields also give investors a more stable option to the volatility of stocks.
If oil is the lifeblood of the world’s economy, the cost of capital is the lifeblood of companies. The longer this Iran crisis continues, the higher inflation will go and the higher rates will remain. As a result, it’s highly unlikely we will see rate cuts this year, and we’re far more likely to see rate hikes if the Fed wants to remain relevant.
Coming this week
- Data will start on Tuesday with the June consumer price index (CPI). We may see an improvement from the prior month because energy prices fell to pre-crisis levels, but if things continue to deteriorate in the Persian Gulf, that improvement may be short-lived.
- Also on Tuesday, Fed Chair Kevin Warsh will present the Monetary Policy Report to the U.S. House Financial Services Committee.
- The second part of the inflation picture will drop on Wednesday with the Producer Price Index (PPI). We’ll also get the Fed Beige Book (economic activity) and MBA mortgage applications.
- Thursday will feature a flurry of data but nothing as weighty as the inflation readings from Tuesday and Wednesday, including retail sales, the Philly Fed, weekly job claims and pending home sales.
- The only meaningful data on Friday will be the University of Michigan consumer survey, which has been showing some improvement. However, it won’t reflect the new developments with Iran and the upcoming impacts on energy prices here at home.
Sources:
1 Enas Alashray and Steve Holland. Reuters. July 10, 2026. “Trump says US agreed to Iran’s request to continue talks, but ceasefire is over.” https://www.reuters.com/business/energy/tanker-traffic-slows-strait-hormuz-after-us-iran-clashes-2026-07-10/. Accessed July 12, 2026.
2 Business Insider. “Oil (WTI).” https://markets.businessinsider.com/commodities/oil-price?type=wti. Accessed July 12, 2026.
3 Bloomberg. “United States Rates & Bonds.” https://www.bloomberg.com/markets/rates-bonds/government-bonds/us. Accessed July 12, 2026.
4 Sean Conlon, et al. CNBC. July 9, 2026. “S&P 500 closes higher as chip stocks rise and oil prices slide.” https://www.cnbc.com/2026/07/08/stock-market-today-live-updates.html. Accessed July 12, 2026.
5 CNBC. “U.S. 10 Year Treasury.” https://www.cnbc.com/quotes/US.10. Accessed July 12, 2026.
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