Business Rundown: Muted Markets Await Iranian Response
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Monday, June 23rd, 2025. After the United States struck three Iranian nuclear sites over the weekend, many expected volatility in the markets. But as of 10 a.m. Eastern on Monday morning, major stock indices and oil prices appear to not be shifting dramatically. That is suggesting that investors may not react until Tehran does.

I think, again, that's why markets are shaking off this threat. I think that's also why markets are shaking off, you know, the conflict in general with Iran. Markets are up a little bit today so far. And so I think most people think that Iran is not much more than a paper tiger. After much deliberation, the U.S. military carried out Operation Midnight Hammer to take out three nuclear facilities in Iran. President Trump addressed the nation at 10 p.m. on Saturday night.

emphasizing that the White House objective to destroy Iran's nuclear enrichment capabilities was a success and emphasizing that with the nuclear threat neutralized, now is the time for peace with Iran.

Investors are bracing for a turbulent day for the markets this Monday, but instead were handed a very muted trading response. Investors indeed have been pricing in certain geopolitical risks already, as Israel and Iran have exchanged airstrikes and missile attacks for the past few weeks.

Some have predicted that a possible retaliatory response from Iran could be for them to shut down the Strait of Hormuz, a crucial waterway for shipping that's approximately a quarter of the world's oil and natural gas. This move from Iran would raise energy prices dramatically, but it would also have serious economic consequences for Iran, too. Secretary of State Marco Rubio told Fox Business' Maria Bartiromo that Iran...

closing that crucial strait would be quote economic suicide. So despite the calm in the markets for now, all that could change as the world looks with anticipation to see how Iran will respond. Even though oil prices are up a little bit from say a few weeks ago or a month ago, if you go back a couple years, it was over $100 a barrel. It doesn't seem like markets are particularly worried about it rising at the moment.

Paul Mueller is an economist with the American Institute for Economic Research, and I'm pleased to say he joins me now. The question is really whether Iran's threats are any more than talk. And I think Secretary Rubio and others have said the whole world is going to be against them if they do this. China also stands to lose a lot from this as well. So I think right now markets are not expecting Iran either to follow through on their threats or, for if they do, that it would not last very long. Yeah.

One of those threats is closing the Strait of Hormuz, which we've talked about. About 20% of global production goes through that strait. Now, Iran uses that to export, I believe, 90% of their oil to China. So you're right. You don't want to bite the hand that feeds you, right, if China's funding Iran's war.

But Saudi Arabia, Iraq, they also use the Strait of Hormuz. How worried are you about that closure, potential closure? Well, if they were able to shut it down, that would certainly be disruptive. But again, I think that the markets and the world is betting that even if they tried, they wouldn't be able to shut it down for very long. And I think Saudi obviously has a strong interest in closing.

keeping the straight open. And so I think, again, that's why markets are shaking off this threat. I think that's also why markets are shaking off, you know, the conflict in general with Iran. Markets are up a little bit today so far. And so I think most people think that Iran is not much more than a paper tiger. I mean, when you talk about markets, I've been just astounded at the resiliency of these equity markets.

You're still a couple hundred points higher than we were on Liberation Day. Remember the 4 p.m. on April 2nd, right before the Liberation Day, we're at a 56-71 on the S&P. We're still about 6,000. So is this a market?

And I know you're more of an economist, not markets, but is this just an economy that is desperate to just go higher and chug along despite all of the geopolitical risk and the tariff news that we've gotten so far this year? I think that's right. I mean, the way that I talk to people about it is, you know, for...

parts of Trump's economic plan. Three of them are pro-growth. One of them's not so pro-growth. So lower taxes, which it looks like is making its way through Congress. Lower energy prices, which we've seen across in the U.S., deregulation, all the sorts of things that's pushing energy prices lower.

And then, of course, deregulation. All of those things are tailwinds to the economy. And I think we're seeing that reflected in the markets. Now, the wild card is the tariffs, as you mentioned, Liberation Day tariffs. And I think what we've seen since then is that the initial proposed tariffs have been scaled back.

dramatically. And I think markets are basically have sort of incorporated that and don't think that those are coming back in terms of the really high rates that he proposed on Liberation Day. This 10 percent universal tariff is probably around to stay. That's not necessarily pro growth, but, you know, if you offset it with other kinds of tax cuts and deregulation, I think what we're seeing right now in markets is that it seems like people think the economy is going to be able to shake that off because there's so many tailwinds behind it.

One other thing I might mention, too, is, you know, I don't want to bring the Federal Reserve into this as well, but the Federal Reserve, obviously, they've been maintaining their interest rate target for a while. But what's less talked about is their balance sheet. And they still have an enormous balance sheet. Post-COVID, they created huge amounts of money, bought tons of equity. And so I think we are still living in a world where there's quite a bit of money and liquidity out there, even though rates are higher. And President Trump has talked about that. I still think there's a lot of liquidity out there. And I think that's also supporting stock market prices at the moment.

You talked about the Federal Reserve. I just want to mention one board member, I believe on Thursday or Friday, had mentioned that he's open to a July rate cut. And then earlier this morning, we got another board member saying that she is open to July, given that inflation from tariffs has not yet shown up in the data. And so given the risks, they are open to cutting. So to me, that signals inflation.

If you now have two people in the last couple of days saying July instead of September, and we'll hear from Jay Powell, I believe, tomorrow and Wednesday when he testifies in front of the Senate, that July is good. So is that also a good supportive backbone for the economy despite

oil despite Iran, you could have a Fed come in and cut rates to really help fuel the momentum. Yeah, I think the Fed's in kind of a ticklish spot right now. So they missed the inflation that came in 2021. And so then they had to really step on the brakes really hard. And I think

you know, in their view, what you don't want to do when you're driving is you step on the gas, step on the brake, step on the gas. And I, so I think they're a little bit gun shy. And of course there's all kinds of political layers on this in terms of, are they caving to what Trump wants? Are they doing this because it was the best policy? So I still think the fed is, is feeling pretty cautious, especially chairman Powell. Um,

But I do think that there's openness with the economic data. And again, every month you get a little bit more data. So if the jobs remain strong, unemployment remains low, if GDP growth for the second quarter comes in moderate and we don't see inflation tick back up,

then I think the path is open for cutting. So I'm not predicting a July cut yet, but I think we're closer to that than we were just a week or two ago. And then, of course, there's whatever international conflict develops. But right now, it doesn't seem like the economy needs a boost, which is normally why you'd cut rates.

And inflation has come down a lot, but it's still above kind of their target. And so I think in a perfect world, in Powell's perfect world, I think you'd like to see inflation come down a little bit more before he begins cutting. But, you know, we don't live in a perfect world. So they may cut in July. We'll see. I want to talk about inflation. I was reading one analysis this morning saying a 10% increase –

permanent global oil prices so let's say Brent goes from 70 to 77 or whatever that only translates into a couple points in terms of inflation that it it does I mean certainly it hits us when we go to the gas station and we fill up our tank but it doesn't get embedded in the inflationary data as much as one would think and

What do you say to that? Yeah, I think that's right. You know, I come from the school where inflation is primarily a monetary phenomenon. So Milton Friedman used to say inflation is everywhere and always a monetary phenomenon. And I think that's right. And so oil prices obviously affect the price of everything because it's, you know, this sort of basic energy that goes into all the stuff that we produce.

However, in the long run, people adapt. They find less energy-intensive ways of doing things. They shift what they produce, or when they produce it, how they produce it. It's true that significant swings in the price of oil will affect prices in the short run. But over time, markets will adjust to that. It's really the monetary, in the long term, it's the monetary changes that drive the devaluation of the dollar when we print more currency or create more currency in the markets.

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I was reading another note. Everyone's an oil expert today coming off of the conflict over the weekend. So I'm trying not to be an expert, but read what the experts are writing to me. And they were talking about Saudi Arabia, for example, can use the red seed export.

They don't have to go through this straight-ahead moves, which would be great. The U.S. is close to being a net exporter. Trump out this morning on True Social saying, all of you trying to keep oil prices high, I'm onto you, I'm watching you. Effectively trying to goad U.S. shale drillers to start producing more, to bring down prices by boosting supply rates.

So how does that then impact the economy? If prices stay high and we're close to being a net exporter, that's a tax on me. I pull back on demand if I don't like high prices. But am I reading that right? How do you think about the way the long term impact of this?

Yeah, that's a great question. I mean, a lot of it depends on the timeframe that we're talking about. So the great thing about markets is that Trump doesn't have to tell oil companies to produce more oil. When the price of oil goes up, they're going to do that automatically. And there's a lot of production in the U.S. that can sort of be turned on and off with a switch. And so the great thing, this is why markets are so resilient. So even as the price of oil rises, you're going to see production increase. You're going to see higher cost markets.

oil excavation being turned on when it hits $80 or $85 a barrel. And then you have other people, again, who -- what's beautiful about prices is that as prices rise, people reconfigure, "OK, do I want to buy more or less of this?" And so, as the price rises, "OK, I'm going to cut back on how much oil I use in energy production," let's say, "and I'm going to lean more into natural gas," or "I'm going to lean more into solar panels," or whatever it might be.

And so you're going to see lots of adjustment and you're going to see more supply come online if the price rises. And the real challenge is whether it's a long term or short term change. And again, nobody really knows. And so this is why we want kind of a decentralized world where different oil producers, different manufacturers, the oil shipping companies, you want them to be kind of making their best guesses. And over time with that decentralized approach,

you're going to be getting closer to the reality of what needs to happen to adjust to the new state of the world. Another curveball in all of this, Kathy Hochul, the governor of New York, comes out this morning and announces that

I guess we're going back to nuclear power. I think we learned finally from the Germans a few years ago. It's not so dirty. It can be useful if we want to be a leader in AI. And honestly, we're in a heat wave here in the East Coast that we need nuclear. Announcing one of the first new plants that would be built in 15 years, about one gigawatt, which I believe could power about a million homes. Yeah.

So what do you make of, A, the about switch of going back to nuclear, cleaner, how to allay fears of people who hear nuclear and they get nervous. But again, nuclear takes time to build those plants. What do you make of all that? Yeah, it's very exciting, the change in the energy landscape. Nuclear, it's always been a bit of a mystery to me why people are so anti-nuclear. You can think of on a handful the disasters, right? Chernobyl, Fukushima, Japan.

Three Mile Island. But it's funny, because those are the only instances where there's been a problem. And in most of those cases, almost nobody was killed. So, if you look at calculations of how many people are killed in the production of energy, it's much more common for people to die in fossil fuels or solar panels or even wind turbines. So, nuclear is actually by far the safest form of energy, and also the one that we can create the most of, just because of its abundance.

So I think it's a very positive sign moving this direction. China's moved this direction. They've built a lot of nuclear. There's a lot of developments in the U.S. towards that end. And again, the big barrier to nuclear, part of it is this perception of it being dangerous. But the other part is just the regulatory red tape has been –

We call it blue tape now. Yeah. It shut it down. And I'll give you an example. So the most recent reactor that got built and put online in Georgia that they added to the Georgia plant, my understanding is as they were building that plant, their regulator came in after they had gotten plans approved, had begun construction, and come in and say, actually, you need to move this wall. You need to do this. So they literally came in after 30.

Things were approved to micromanage and change things, and that's why it costs double. Instead of $15 billion, it costs closer to $30 billion. If that's the way something works, no one is going to build it. And so I think what the Trump administration has been very – not just pro-energy, but we're going to fix the regulatory regime. We're going to be pro-nuclear. And it's heartening to see even in a blue state like New York, the governor sort of coming to grips and saying, yeah, we should do this. This is the future, and especially with AI and data centers growing.

energy is going to be crucial. And oil obviously will always be an important part. But I think over time, we're going to see natural gases had a bigger share. And I think nuclear has the potential to be even larger over time if we get the regulatory framework right. The Wall Street Journal hinting at that in their story, it's a must read for our listeners today, where Hochul seemed to hint about taking advantage of the

decline in regulation that Trump has really tried to put forward and say, I will fast track any of these projects and sort of her admitting that, OK, then then we're on board. So it's nice to see at least some bipartisanship there. In the last couple of minutes that we have, this is big, broad question. Take it wherever you want to go. What is the most asked question you're getting right now? Someone calls you up.

They're in a panic or not. And they're asking you what? What is the most question that's on someone's mind right now? Well, you know, it's funny. I mean, I think the most asked question is where's the economy going? And it's funny because we all live in it and we have these months of experience. But it's been sort of a puzzle post-COVID. I mean, COVID obviously sort of –

changed a lot of things, screwed a lot of things up. And then we had this round of inflation. And then we have the Fed raising rates and a lot of people expecting a recession and then not quite having it, probably because a lot of government spending, stimulus spending. And then that's being taken away and the tariffs. And so even though life goes on and markets keep working and we're kind of continuing on,

I think people still feel uncertain. Is there some kind of problem that's going to emerge? Is there some kind of imbalance that's happening? If you think about the 2008 financial crisis, everything seemed fine, seemed fine, and then, oh, maybe there's a little bit of problems, and then the world kind of exploded. And I think even though we're 15 years out from that, I think a lot of people still have in their mind, is there something lurking in the background that we're missing? And I think people are worried about that, especially with the change in the Trump regime. Is there?

I don't know. I wish I knew. I have this sort of lingering pessimism, but it's hard to put a label to it. And it's sort of, you know, is it, I think in my mind, some of the major challenges we face is a retooling, right? So we have sort of cultural and social problems in terms of labor force participation. We have a lot of changes with AI coming. We have a lot of retooling of labor. We have a lot of change at the macro level with immigration, as well as tariffs. And then we'll see what cuts get

tax cuts get put through. And so there's all of this potential churn and change. I think that's why people, even including myself, feel a little bit uncertain of, is there another shoe that's going to drop? But again, on the other hand, as I mentioned, I think most of Trump's policies are very pro-growth. And I think the more we can let the market work, the more we deregulate, the more we can roll with the punches, if you will. And so I would say I'm

fairly optimistic. I think maybe things are slightly overpriced in the equity markets at the moment, but who knows? But I think economy-wise, there's a lot of tailwinds. There's probably some bumps, but I'm not hyper-concerned about, say, a big recession anytime soon. That sounds like a positive note to end it on. Paul, this was a pleasure. Thank you so much for your expertise. Yeah, thank you.

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