US Threats Against Iran and Fed’s Inflation Warnings Rock Asian Stocks

Bearish trends dominate in both Asian and American futures markets under the pressure of Trump’s threats against Iran and warnings from the Federal Reserve regarding upcoming inflation. Shares fell as the US weighs the possibility of immediate conflict with Iran, while Federal Reserve Chairman Jerome Powell warned of significant inflation in the near future. Meanwhile, the dollar strengthened. The MSCI regional stock index fell by 1%, with shares declining across all sectors in Asia. American futures contracts dropped by about 0.3% after the S&P 500 closed with minimal change in the previous session. The dollar gained strength against major currencies. Negotiation in Treasury bonds is closed today (19.6.25) due to an American holiday. According to Bloomberg, senior US officials are preparing for a possible strike against Iran in the coming days. Markets were already unsettled following the Fed’s downgrade of its growth forecast this year and predictions of higher inflation, highlighting how uncertainties caused by tariffs complicate the central bank’s efforts to ease its policy. ‘We are cautious right now, focusing on asset categories less tied to interest rates and less influenced by what the US president does,’ said Gareth Nicholson, head of Nomura for discretionary portfolio management, on Bloomberg TV. ‘But there aren’t many things out there that aren’t tied. So, it’s a climate where being more careful makes sense,’ he emphasized. In commodities, oil declined after a volatile week of trading as the market focused on whether President Donald Trump would drag the US into conflict between Israel and Iran. Gold prices rose. ‘Direct US involvement in an attack on Iran would almost certainly cause a significant rise in oil prices,’ said Manish Bhargava, managing director at Straits Investment based in Singapore. ‘This shock would worsen global inflation, making central banks’ – like the Fed’s – efforts to control it more difficult and possibly delaying interest rate cuts.’ Trump has publicly considered striking Iran, which has been embroiled in a war with Israel for nearly a week. He told reporters at the White House Wednesday that he prefers to make the ‘final decision a second before the time’ because the situation in the Middle East remains fluid. The Fed unanimously decided yesterday (18.6.25) to keep the benchmark interest rate unchanged. Powell noted that tariff increases could raise prices and added that their impact on inflation might be more persistent. He refused to say whether he will stay beyond his term. ‘Ultimately, the cost of tariffs must be paid, and part of it will fall on the end consumer,’ Powell stated. ‘We know this is coming and we just want to see some of it before making premature judgments,’ he added. While the average expectation for two interest rate cuts in 2025 hasn’t changed, several officials have lowered their forecasts. Seven officials no longer foresee any rate cuts this year, compared to four in March. Two others indicated one cut this year. ‘Powell played it safe,’ said Haris Khurshid, head of investments at Karobaar Capital in Chicago. ‘They stick to two cuts for now, but clearly they are shaken by tariffs. There’s no urgent need to act. It’s a tough spot: growth is slowing, inflation lingers, and geopolitical risk heats up.’ The yen gave up early gains and trades slightly lower against the dollar. The Australian dollar remained weak after Australia’s economy surprisingly cut jobs in May, reinforcing the case that the central bank must cut rates further. Elsewhere in Asia, Thailand faces new political uncertainty after the second-largest party in Prime Minister Prayut Chan-o-cha’s government left the ruling coalition. Taiwan’s central bank is expected to keep its benchmark rate unchanged for the fifth consecutive quarter, while the Philippines may cut rates. Later Thursday, central banks in Switzerland, Norway, Turkey, and the UK will also issue interest rate decisions.