Trump's Iran War Is Now Crashing the Bond Market Too

The Fed Holds, The Market Folds

The Federal Reserve, under chair Kevin Warsh, voted to keep its key interest rate unchanged this week, and markets responded the way anyone paying attention would expect: badly. According to The Guardian, the S&P 500 closed down 1.5% on Wednesday. The Dow Jones dropped 2.2%. The Nasdaq fell 1.7%. That is not a correction. That is a market quietly screaming.

Warsh said the Fed would "not waver" in its commitment to fighting inflation. Which sounds firm and reassuring until you realize that inflation is rising again specifically because the United States is now fighting a war in the Middle East that was entirely optional. The Fed is being asked to mop up the economic consequences of a foreign policy decision it had no part in making.

US government borrowing costs, as The Guardian reports, are now at their highest point since 2007. That was the year before the global financial crisis, for those keeping score at home. Investors are spooked not because the Fed is incompetent but because the underlying problem is not a monetary one. You cannot set interest rates low enough to offset an open-ended military conflict.

The War That Won't Stop Starting

After a brief ceasefire between Washington and Tehran, US inflation had actually cooled to 3.5% annually in June, according to The Guardian. That pause is now over. Iran struck a US military base in Jordan on Wednesday, and within hours Trump promised to hit Iran "very hard." The US military then spent two hours striking "dozens" of targets belonging to Iran's Revolutionary Guards Corps, per US Central Command.

The US also partnered with Saudi Arabia to hit Iran-backed militias in Iraq on the same day, killing at least 20 fighters and six Iranian advisers, The Guardian reports. Oil prices responded immediately. Brent crude jumped 7.3% to more than $88 a barrel. Energy costs feed into everything: shipping, manufacturing, food, heating. Every dollar added to a barrel of oil is a tax on ordinary people that no legislature voted for.

This is the economic feedback loop that was entirely predictable. War drives oil prices up. Oil drives inflation up. Inflation forces the Fed's hand. The Fed's response slows growth and raises borrowing costs for the US government itself. And then the cycle spins again. The administration launched this war. The country is paying for it in a dozen different ways simultaneously.

Fauci Pleads the Fifth, Rand Paul Gets His TV Moment

Meanwhile, in the Senate, Republicans held a hearing on the origins of Covid-19 that managed to be both maximally theatrical and completely useless. Dr. Anthony Fauci invoked the Fifth Amendment and refused to answer questions, directly accusing Senator Rand Paul of running a campaign designed to embarrass and intimidate him, and ultimately to land him "behind bars." Fauci called Paul's fixation an "unhinged obsession." It is difficult to argue with that characterization.

As The Guardian reports, Democratic Senator Gary Peters of Michigan described the hearing as actively harmful, pointing out that the US is currently dealing with record-high outbreaks of measles and the food-borne parasite cyclospora. Real, ongoing, present-tense public health emergencies. The Senate committee chose instead to spend the day re-litigating a crisis that ended years ago.

The Guardian's Jessica Glenza analyzed the hearing and found what anyone watching could see: six years on, Republicans are still using Covid as a mechanism for attacking science broadly, not as a genuine attempt to understand what happened. Fauci is the piñata. The beatings will continue until someone figures out a better fundraising hook, which they won't, because this one still works.

A Senate Vote Stalls, a Slush Fund Looms

The Senate Judiciary Committee postponed a scheduled Thursday vote on Todd Blanche, Trump's pick for US attorney general, according to The Guardian. The holdup is unusual: a Republican senator withheld support after the Department of Justice failed to provide written assurances that a $1.8 billion slush fund had been shut down.

Read that again slowly. A Republican senator is blocking a Trump appointee because the DOJ would not put in writing that a $1.8 billion fund is dead. The DOJ declined to provide that assurance. What exactly does that tell you about whether the fund is actually dead? The vote has been postponed. The fund, apparently, remains a topic of lively interest.

The Rest of the World Did Not Take the Day Off Either

Japan's earthquake death toll rose to 30 on Thursday, as The Guardian reports, with rescue teams still searching through a collapsed shopping mall, a paper mill, and homes across the country's south-west. Russian airstrikes killed at least 13 people in Ukraine, with attacks reaching as far as the western city of Lviv and prompting Poland to scramble fighter jets to protect its airspace.

And Elon Musk's AI company xAI has sued the state of Minnesota over its first-in-the-nation law banning "nudification" technology on websites and apps, per The Guardian. Because of course it has. The man is fighting a two-front war: one against a state trying to prevent AI from non-consensually generating nude images of real people, and one against the concept of consequences in general.