Why the Iran Peace Deal Won’t End Rate Hikes

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Luke Vargas (0:33)

Central banks try to read the tea leaves on how an end to the Iran war would affect inflation. Plus, California's Gavin Newsom says his presidential aspirations have made him the Justice Department's next target, and parents and schools struggle to protect young people as nudify tools proliferate.

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Luke Vargas (1:07)

It's Tuesday, June 16th. I'm Luke Vargas for the Wall Street Journal, and here is the AM Edition of What's News, the top headlines and business stories moving your world today.

G7 leaders are gathering on the shores of Lake Geneva today for their latest summit, compared to more sleepy gatherings in recent years. Policy action is front and center this year ahead of a signing ceremony scheduled for Friday to end the Iran War. Journal White House reporter Natalie Andrews is at the summit.

Natalie Andrews (1:37)

Trump really landed in France with some good news to share, right? He was able to say, hey, we engaged in this conflict. He had expressed a lot of frustration at allies for not joining him in the war, but he's also coming to these meetings with some allies that he's sparred with, being able to bring some good news. He can say, hey, look, the cost of oil is coming down.

This will get ships moving through the strait quickly. He's asked allies for help in the demining, but he's saying that ships are already moving.

Luke Vargas (2:04)

Well, if talk of Iran could be less heated with a peace deal in sight, Natalie said that the wild card today comes in the form of Ukraine's Vladimir Zelensky, who along with his European backers is hoping that a combination of battlefield gains and Iran fading as a US priority, will put his country back in the spotlight.

Natalie Andrews (2:24)

The tide seems to be turning in Ukraine's favor in the war and Europe will definitely be making that case to Donald Trump. Trump has been very focused on Iran and now with the MOU sign, he may focus his attention back to Zelensky. He's often expressed a lot of sorrow over how deadly and tragic this war has been for both Russia and Ukraine. And he certainly would like to get to a deal. It's just been really hard to get there.

Luke Vargas (2:51)

The summit is set to continue tomorrow with a meeting on tech featuring OpenAI's Sam Aldman and Anthropics' Dario Amadei.

Well, while the details are still being worked out, Trump's peace deal with Iran has fueled relief among central bankers worried about rising inflation. Concerns around runaway prices prompted several central banks to halt rate cuts this year and for some to begin hiking rates, like last week's ECB decision and the Bank of Japan's Today. Though for the Reserve Bank of Australia's Governor Michelle Bullock, that calculus sounded like this earlier.

Michelle Bullock (3:27)

The cash rate has been increased by 75 basis points since the start of the year. These increases are tough for households with mortgages, who are also facing high inflation. But they are necessary to slow demand to make sure we get inflation down. I want to be very clear that inflation remains too high.

Leaving rates on hold today will allow the board to assess how these previous increases are flowing through the economy.

Luke Vargas (3:53)

Paul Hannon is the economics editor for Dow Jones Newswires and says it's been difficult for central banks to settle on a firm outlook for the economy this year.

Paul Hannon (4:02)

The Fed, the Bank of England, and there's also Sweden and Switzerland to come, will obviously be happy that there is the prospect of peace on the horizon because that limits the prospect for inflation getting out of control over coming months and in the US, you'd expect to see, and indeed, you already have seen gasoline prices coming down.

But at the same time, there is still inflation, repressure in the economy, and who knows how long it's going to take for that to cool down. They will mostly, I think, want to leave open the possibility that they might raise interest rates again in the future.