Financial markets have been jolted over the past week by a sharp escalation in geopolitical risk. The sudden intensification of hostilities between Israel and Iran—marked by missile strikes and retaliatory air operations—has reignited fears of a broader regional conflict with global consequences. This flare-up has driven a visible spike in geopolitical risk indicators (Chart 1), unsettling investor sentiment at a moment when markets were still digesting the implications of US protectionist trade policies. As tensions mount, the economic shockwaves have been rippling outward: oil prices have rebounded sharply (Chart 2), global shipping costs have climbed sharply along key maritime routes (Chart 3), and capital markets are once again grappling with an unpredictable macro landscape. Iran’s strategic importance—both as a holder of nearly 10% of global oil reserves and as a key player in energy shipping lanes such as the Strait of Hormuz—underscores the vulnerability of global energy security (Chart 4). But the implications are not just immediate. Over the medium term, higher real energy prices have already been weighing on living standards and growth outcomes across many advanced economies (Chart 5), with the data pointing to a clear inverse relationship between real energy costs and gains in per capita GDP. Compounding this is the slow, structural erosion of natural capital—soils, forests, water systems—which continues to undermine long-run economic resilience and productive potential (Chart 6).
Global| Jun 18 2025Charts of the Week: Conflict, Energy and Constraints
by:Andrew Cates
|in:Economy in Brief
- FOMC holds funds rate target at late-December level.
- The decision was unanimously approved by FOMC voters.
- Expected GDP growth expectations reduced; price inflation raised.
by:Tom Moeller
|in:Economy in Brief
USA| Jun 18 2025U.S. Housing Starts Slump in May as Multi-Family Plummets
- Single-family starts edge higher; multi-family drops to six-month low.
- Starts decline in most of the country.
- Building permits move down as well, led by single-family weakness.
by:Tom Moeller
|in:Economy in Brief
USA| Jun 18 2025U.S. Initial Jobless Claims Eased in Latest Week
- Initial claims for unemployment insurance eased in the week ended June 14.
- Total beneficiaries decreased by 6,000 in the June 7 week.
- The insured unemployment rate was unchanged at 1.3%.
USA| Jun 18 2025U.S. Mortgage Applications Decline in the June 13 Week
- Purchase and refinancing loan applications fell.
- Effective interest rate on 30-year fixed-rate loans fell to 7.03%.
- Average loan size eased.
United Kingdom| Jun 18 2025U.K. Inflation Moderates
Inflation in the United Kingdom measured by the CPI-H measure rose by 0.1% in May as the core excluding energy, food, alcohol, and tobacco also decelerated by increasing 0.1% on the month. These slower May increases follow accelerated increases in April for both the headline and core and more modest increases in March. The sequential growth rates in the headline CPI-H show a gain of 4% over 12 months, a rise at a 4.3% annual rate over 6 months, and a 3.4% annual rate rise over 3 months. The core for the CPI-H shows a 4.2% increase over 12 months, a 4.1% annual rate increase over 6 months and another slight deceleration to 3.6% at an annual rate over 3 months. These data for the headline and the core both show that U.K. inflation has plateaued and begun to edge lower; however, the deceleration is quite slight for both the headline and for the core measures.
Inflation diffusion that measures the breadth of inflation shows a reading of 54.5% over both 12 months and 6 months, with 3-month diffusion much lower at 36.4%. Diffusion readings of 50% show inflation accelerating and decelerating with equal tendencies from period-to-period. Diffusion above 50% shows more accelerating inflation while diffusion below 50% finds more deceleration for inflation. Diffusion readings show that for 3-months compared to 6-months diffusion is significantly lower but that diffusion over 6 months (compared to 12-months) and for 12-months (compared to 12-months ago) is slightly accelerating.
The HICP measure parallels the results for the headline CPI-H with a slight inflation bulge over 6 months and significant slowing of inflation over 3 months. The agreement across the headline, and core CPI-H measures compared to the HICP is reassuring that these trends are true and not simply mercurial or the results of a particular inflation weighting scheme (since CPI-H and HICP use different weights).
Meanwhile unemployment in the U.K. has risen only slightly over the past 12 to 24 months. The recent U.K. monthly GDP reading showed a sharp slowing, but year-over-year growth is still positive headline.
The sequential chart that depicts the growth rates sequentially for timeseries of 3-month, 6-month and 12-month inflation (above) shows that part from a one month slice of those rates (which is what the table provides) the timeseries reveal that the tendency for inflation peaked across these three frequencies back in January and has since been reduced to its lowest pace since October 2024 for both 6-month and 12-month CPI-H core inflation. For the 3-month version, inflation at 3.6% is the slowest since January 2024. Three-month core inflation has slowed without increasing for four months in a row as has 12-month core inflation.
USA| Jun 17 2025U.S. Home Builders Index Declines in June
- Overall reading stands at lowest level since December 2022.
- All component measures fall.
- Most regional indexes retreat.
by:Tom Moeller
|in:Economy in Brief
- May IP -0.2% (+0.6% y/y), led by a 2.9% m/m decrease in utilities output.
- Mfg. IP +0.1%, reflecting m/m gains of 4.9% in auto production and 1.1% in aerospace & misc. transp. equipt. (w/ durable goods up 0.4% and nondurable goods down 0.2%).
- Mining activity edges up 0.1%, the third m/m increase in four months.
- Key categories in market groups mostly drop.
- Capacity utilization down 0.3%pt. to a four-month-low 77.4%; mfg. capacity utilization unchanged at 76.7%.
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