The peace-deal euphoria that sent stocks screaming higher on Monday just collided with an uncomfortable economic reality. Tuesday’s data dump — a blistering import price beat and a housing starts crater — frames the stagflation dilemma that lands on new Fed Chair Kevin Warsh’s desk as his first policy meeting gets underway today.
Wall Street partied on Monday after the U.S. and Iran agreed to end their war and reopen the Strait of Hormuz, sending the Nasdaq up 3.1% and the Dow to a record close of 51,671. Oil plunged roughly 5% to $77.60 a barrel. The VIX slumped to 16.20. It felt like the all-clear. Then Tuesday morning arrived.
Import prices: the inflation ghost isn’t done haunting
The Bureau of Labor Statistics reported that import prices rose 1.9% in May, crushing the 1.1% consensus and matching April’s 2.0% pace (BLS). Year-over-year, imports are up 6.7% — the hottest clip since August 2022. Fuel imports drove the print, surging 12.5% on the month, with petroleum up 13.0% and natural gas up 10.4%. The three-month fuel surge — February through May — clocked in at a staggering 47.0%.
But don’t dismiss this as purely an energy story. Nonfuel imports rose 0.8% on the month, with capital goods up 1.3% — driven by computers, semiconductors, and industrial machinery. Consumer goods excluding autos posted their largest monthly advance since January 2024. The import pipeline is transmitting broad-based price pressure, not just a petroleum spike.
Exports tell the same story: up 1.3% in May and 11.2% year-over-year (largest since July 2022). Air freight costs are up 27.6% annually. These numbers don’t scream “transitory.”
Housing starts: the foundation cracks
If import prices were the inflation half of the stagflation equation, housing starts delivered the stagnation. The Census Bureau reported May housing starts at a seasonally adjusted annual rate of 1,177,000 — a 15.4% plunge from April’s revised 1,392,000 and a massive miss against the 1.43 million consensus (Census Bureau). That’s the kind of miss that makes economists double-check their spreadsheets.
The damage was concentrated in multi-family: starts in buildings with five or more units collapsed to just 284,000, driving the headline freefall. Single-family starts were essentially flat at 882,000 — a 1.9% decline that the Census Bureau flagged as statistically indistinguishable from zero. Building permits held steady at 1,413,000, suggesting builders haven’t completely abandoned the pipeline. But when the actual ground-breaking falls 15% in a single month, the message is unambiguous: financing costs are biting.
Home builder confidence, reported Monday, fell to 35 in June — its lowest since December 2023 and well below the 50-line separating expansion from contraction (NAHB). Builders are reading the room, and the room says “wait.”
The Warsh wildcard: what the Fed sees
Today’s data lands squarely on the FOMC’s table as the two-day meeting begins — the first under Chair Kevin Warsh. Markets price a 99% probability of no change tomorrow (CME FedWatch). That’s the easy call. The hard call is what Warsh signals about the path forward.
The data picture is bifurcated in exactly the way that makes central banking hard. On the inflation side: May CPI at 4.2% year-over-year, core at 2.9%. May PPI at 1.1% monthly. Import prices at +6.7% annually. None of these support rate cuts. On the growth side: housing starts down 15%, Empire State manufacturing collapsing to 5.7 versus 13.9 expected, industrial production crawling at 0.1%. Homebuilder sentiment in contraction territory.
Warsh’s pre-nomination history — he advocated for lower rates, aligning with Trump’s demands — might suggest dovish instincts. But as Wells Fargo economists dryly noted, “the economic reality is recent data and our sense of the FOMC’s reaction function argue there is a high hurdle to cut at this juncture” (Wells Fargo). The peace deal and falling oil prices help the inflation outlook at the margin, but the import data suggests disinflation isn’t happening fast.
Markets: treading water before the decision
Futures were mixed in early trading Tuesday. Dow futures edged up 0.2%, the S&P 500 was flat, and the Nasdaq 100 slipped 0.2% (Investopedia). The 10-year Treasury yield held at 4.46%. Oil continued its post-deal slide, with WTI dipping another 3% toward $77. The dollar index sat at 99.65, unchanged. Nobody’s making big bets ahead of tomorrow.
Sector-wise, energy took the predictable hit (XLE -3.6% Monday), while tech and communication services led the rally on falling-rate hopes and the SpaceX-Cursor deal. Boeing jumped 4.5% on peace-dividend optimism.
What to watch
Wednesday, June 17: May retail sales (8:30 AM ET) will test whether the consumer is holding up as housing and manufacturing wobble. Then at 2:00 PM, the FOMC decision — followed by Warsh’s first post-meeting press conference at 2:30 PM. The rate decision is a foregone conclusion. The dot plot, the statement language, and Warsh’s tone are not.
Thursday, June 18: Weekly jobless claims (consensus 225,000) and the Philadelphia Fed manufacturing index. Claims have been ticking up — a four-week trend above 230,000 would get attention.
Next week: The PCE price index — the Fed’s preferred inflation gauge — drops Thursday, June 25, alongside durable goods orders and the third estimate of Q1 GDP. If today’s import prices are any guide, the PCE print could surprise to the upside too.
The peace deal gave markets a reason to rally. Today’s data gave the Fed a reason to stay cautious. The collision of those two forces — geopolitical relief versus sticky inflation — will define the next chapter.