Middle East Tensions Escalate Further as Hawkish Fed Remarks Reinforce Rate Hike Expectations

Summary:

The U.S. military launched a new round of airstrikes, marking the fifth consecutive night of attacks on Iran; Dallas Fed President Logan said she supports a moderate rate hike to bring inflation down......

Highlights

1. Iran instructs the Houthis: Close the Bab el-Mandeb Strait if the U.S. attacks Iran's power infrastructure.

2. Iranian military: If hostilities continue, the conflict will expand into new areas.

3. U.S. imposes a 25% tariff on selected Brazilian goods, while exempting beef and coffee.

4. Fed's Logan: Supports a moderate interest rate hike to reduce inflation.

5. U.S. military launches a new round of airstrikes, marking the fifth consecutive night of attacks on Iran.

6. U.S. June retail sales post the weakest growth in five months, weighed down by lower gasoline prices.

Details

Iran Instructs the Houthis: Close the Bab el-Mandeb Strait if the U.S. Attacks Iran's Power Infrastructure

According to three sources, Iran has instructed Yemen's Houthi movement to prepare to immediately close the Bab el-Mandeb Strait if the United States strikes Iran's power infrastructure—a move that would pose a significant new threat to global energy supplies.

The plan has reportedly been discussed within Iran's leadership, and the relevant instructions have already been conveyed to the Houthis, who were recently informed of Tehran's request. The sources did not specify how the message was delivered, nor did they confirm whether the directive was issued after President Donald Trump threatened on Tuesday to strike Iran's power facilities.

Iranian Military: If Hostilities Continue, the Conflict Will Expand into New Areas

On July 16 local time, Iranian military spokesperson Mohammad Akraminia said that countries outside the region should engage with Iran on the basis of mutual respect and that Iran's armed forces are fully prepared to safeguard the country's national security and interests.

Akraminia stressed that Iran has consistently sought cooperative and brotherly relations with neighboring countries and other Islamic nations and has no intention of confronting them. He also said that a considerable portion of Iran's military capabilities has yet to be demonstrated.

"If hostile actions against Iran continue, we will respond based on the circumstances. Our response will exceed our opponents' expectations, and the conflict will expand into new areas," he said.

U.S. Imposes 25% Tariff on Selected Brazilian Goods, Exempts Beef and Coffee

The Office of the U.S. Trade Representative has imposed a 25% tariff on selected Brazilian goods under Section 301 of the Trade Act of 1974, following the conclusion of a year-long investigation.

The investigation found that Brazil had engaged in unreasonable practices involving digital trade and electronic payments, preferential tariff policies, anti-corruption enforcement, intellectual property protection, ethanol market access, and illegal deforestation, which were deemed to burden or restrict U.S. commerce.

U.S. Trade Representative Jamieson Greer said that despite extensive negotiations over the past year, the issues remain unresolved. The United States remains willing to continue talks to address these longstanding concerns. At the same time, the U.S. exempted Brazilian beef and coffee from the new tariffs.

Fed's Logan: Supports a Moderate Interest Rate Hike to Reduce Inflation

Dallas Fed President Lorie Logan said in remarks on Thursday that the Federal Reserve should raise interest rates to address persistently high inflation.

She noted that June inflation data released on Tuesday showed price pressures had eased, but not enough to be confident that inflation is firmly back on track toward the Fed's 2% target.

"The June CPI report suggests inflation could return to target, making the outlook more encouraging. However, that path remains highly fragile. At this point, I believe a moderate increase in interest rates would help better balance the outlook and the associated risks," Logan said.

U.S. Military Launches New Round of Airstrikes, Fifth Consecutive Night of Attacks on Iran

U.S. Central Command announced on Thursday that U.S. forces launched a new round of airstrikes against Iran beginning at 2:00 p.m. Eastern Time, marking the fifth consecutive night of military strikes.

Multiple explosions were reported west of Iran's Port of Bandar Abbas, while areas near Qeshm Island were also struck by U.S. projectiles.

CENTCOM also stated that the U.S. Marine Corps conducted a boarding inspection of the tanker M/T Wen Yao in the Gulf of Oman on Thursday.

As of Thursday, U.S. forces had diverted three merchant vessels attempting to circumvent the blockade on Iran, disabled one vessel that failed to comply with instructions, and boarded another vessel for inspection.

Meanwhile, Iran's judiciary-affiliated Mizan News Agency denied President Trump's claim that an American prisoner had been released, saying that no U.S. citizen had been freed from an Iranian prison or exchanged.

U.S. June Retail Sales Post Weakest Growth in Five Months as Lower Gasoline Prices Weigh

U.S. retail sales rose a modest 0.2% month over month in June, marking the smallest increase in five months, as declining gasoline prices weighed on service station receipts.

However, stronger motor vehicle purchases and robust online spending prompted economists to raise their forecasts for second-quarter U.S. GDP growth by at least 0.2 percentage points, to an annualized rate of 2.4%.

A separate report showed that the U.S. labor market remained resilient, with initial jobless claims falling to a two-month low last week.

Despite the encouraging economic data, neither report changed market expectations that the Federal Reserve will leave interest rates unchanged at its meeting later this month.

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