Washington Update - June 22
In the memorandum detailing the second cease-fire in the U.S.-Israel war on Iran, President Donald Trump acknowledged Iran’s economic power outperformed the U.S. and Israel’s overwhelming military supremacy. The President said he was motivated to settle with Tehran by the potential for a global depression brought on by Iran’s closure of the Strait of Hormuz. The memorandum trades Iran’s opening the strait for the lifting of sanctions and the promise of $400 billion in unfrozen assets and investment.
Iran chose not to close the strait for nearly 50 years because doing so would trigger war. When the U.S. and Israel bombed Iran, the proscription was invalidated. Iran closed the strait and gained global economic leverage. Tehran’s willingness to endure death and destruction outlasted America’s resolve to endure economic pain.
Israel is not a party to the memorandum and is reluctantly working through the memorandum’s cease fire in Lebanon. President Trump says he will dominate Israel to comply, the failure of which will prompt Iran to close the strait again.
The situation in Iran suggests the President overreached in seeking to overthrow the Iranian regime with an aerial campaign, resulting in compromises he would have preferred to avoid. It is uncertain a lesson has been learned as President Trump muses that regime change in Cuba will be easier.
Domestically, one element of President Trump’s overreach involves punishing Senate Republicans for not complying with his demands to abandon the filibuster, fund his ballroom, ban mail-in voting, and permit his weaponization fund. There are no signs of a Senate Republican revolt against the President, but Republicans worry his divisions will erode chances for the party to retain its majority, especially after his success in defeating Republican incumbents in primary campaigns.
The Federal Reserve’s first meeting with Kevin Warsh as chairman produced no change in interest rates and suggested possible future rate hikes.
