Continuing the saying, “Fool me once, shame on you; fool me twice, shame on me,” fool me three times and I should be an investor.
As expected, the two-month deadline limiting the U.S. president’s ability to take military action without congressional approval has expired without the conflict coming any closer to an end. In a letter to congressional leaders, Trump argued that he is not subject to the War Powers Act, claiming that last month’s ceasefire with Iran “stopped the clock” on any such obligation. To be fair, historically, other presidents have also found ways to extend military interventions beyond that limit.
Either way, the markets, judging by the rise in the S&P 500 and the Nasdaq, do not seem particularly concerned, betting on another “TACO” or a verbal intervention from the U.S. president.
And they didn’t have to wait long. On Sunday, Trump said that a U.S. operation to ensure the safe passage of ships through the Strait of Hormuz would begin on Monday, adding that negotiations with Iran were progressing positively.
The only issue is that, at the same time, Washington rejected Iran’s proposal to end the conflict in three phases, and, on top of that, reports emerged on Monday that Iran had attacked a U.S. vessel attempting to pass through the Strait of Hormuz after ignoring warnings.
Although the U.S. has denied those claims, the two sides are still a long way from any real agreement, despite the optimistic rhetoric on Truth Social.
For the global economy, this kind of uncertainty is far from benign. While central banks are not rushing to raise interest rates in response to inflation risks, they are preparing for that possibility. Even within the Federal Reserve, as Powell noted, a growing number of members are uncomfortable with maintaining a “more accommodative” stance.
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