Key Takeaways
- Fed’s Alberto Musalem warns that the current real policy rate may be at or below the long-run neutral level, suggesting that monetary policy is less restrictive than previously estimated.
- A reported 60-day memorandum of understanding (MOU) between the U.S. and Iran aims to reopen the Strait of Hormuz and secure a commitment from Tehran to halt nuclear weapon development.
- Anthropic launches Claude Opus 4.8, introducing a "Fast Mode" at $10 per million input tokens while maintaining standard pricing at $5 per million.
- The U.S. Treasury’s $77 billion 7-year note auction yielded 4.290%, supported by a massive 78.4% indirect acceptance rate indicating strong international demand.
- Spot gold prices surged nearly 1% to $4,498.63 per ounce, reflecting a complex mix of geopolitical optimism and lingering inflation fears.
Fed’s Musalem Abandons Easing Bias
St. Louis Federal Reserve President Alberto Musalem struck a decidedly hawkish tone on Thursday, stating that the central bank’s current policy rate appears to be at or below the long-run neutral rate. Musalem revealed that as early as April, he believed the "easing bias" in the Fed's official statements was no longer consistent with the prevailing economic risks. He emphasized that future decisions to hike, cut, or hold rates will depend entirely on incoming data, particularly as longer-term inflation expectations show signs of drifting higher.
Musalem also expressed skepticism regarding the "productivity miracle" often attributed to artificial intelligence. He warned that it would be risky to rely on future AI-driven productivity gains to solve current inflation problems while demand pressures remain robust. His comments suggest a growing rift within the Fed as policymakers weigh the potential of AI against the reality of a 3.8% PCE inflation rate recorded through April.
U.S. and Iran Close in on 60-Day De-escalation Deal
Geopolitical tensions saw a potential breakthrough following reports from Axios and other outlets of a 60-day memorandum of understanding between Washington and Tehran. The deal would require Iran to remove all naval mines from the Strait of Hormuz within 30 days and guarantee "unrestricted" shipping without tolls or harassment. In exchange, the U.S. would proportionally lift its naval blockade as commercial traffic resumes.
While the Iranian President publicly stated that the nation is not seeking nuclear weapons, the MOU reportedly includes a formal commitment to that effect. However, sources indicate that the deal is currently awaiting final approval from senior leadership, including President Trump and Iran’s Mojtaba Khamenei. Market reaction was mixed, as optimism over energy supply stability was tempered by the Iranian Deputy Foreign Minister's warning that Tehran would respond to any ceasefire violations.
Anthropic Debuts Claude Opus 4.8 with "Fast Mode"
In the technology sector, Anthropic announced the global launch of Claude Opus 4.8, the latest iteration of its flagship AI model. The company maintained its standard pricing of $5 per million input tokens and $25 per million output tokens, but introduced a new "Fast Mode" designed for high-velocity tasks. This premium tier is priced at $10 per million input and $50 per million output tokens, offering speeds roughly 2.5 times faster than the standard version.
The update comes as the European Union moves to secure its own technological sovereignty. A draft law reported by the Financial Times suggests the EU is seeking emergency crisis powers to seize control of semiconductor supply chains and force manufacturers like Nvidia (NVDA) to prioritize "crisis-critical" orders. The move is intended to reduce Europe's dependence on U.S. and Asian technology, potentially benefiting local firms like SAP (SAP).
Treasury Demand Holds Firm Amid Global Shifts
The U.S. Treasury successfully auctioned $77 billion in 7-year notes at a high yield of 4.290%, slightly up from the previous 4.175%. Despite the higher yield, the bid-to-cover ratio of 2.52 showed steady interest. Most notably, indirect bidders, which include foreign central banks, took a significant 78.4% of the offering, up from 58.4% in the prior month. This surge in international demand provided a cushion for the bond market as domestic direct acceptance fell to 11.2%.
In other global developments, former central banker Mark Carney noted that Canada remains a vital partner for U.S. energy and critical mineral needs. Carney also highlighted that Russia is losing troops in Ukraine faster than they can be replaced, shifting the balance of force. Meanwhile, spot gold continued its historic run, climbing to $4,498.63 as investors hedge against the possibility that the Fed may need to maintain a "higher-for-longer" interest rate stance to combat persistent price pressures.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.