The Fed Maintains a Hawkish Stance as Global Energy and Geopolitical Risks Continue to Intensify

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Summary:

OPEC+ production increases remain largely on paper, though the group still plans to move forward with quotas; Schmid says inflation remains the biggest risk...

Key Headlines

1. UK Labour MP resigns, potentially paving the way for the Mayor of Manchester to run for party leader

2. U.S. House once again rejects bill aimed at limiting Trump’s war powers

3. Israel says third round of talks with Lebanon held, hopes to establish formal diplomatic relations

4. OPEC+ production hikes remain mostly on paper, but the group still plans to proceed with quotas

5. Gulf states explore post-conflict de-escalation mechanisms with Iran, as Saudi Arabia proposes a non-aggression pact

6. U.S. retail sales continued to grow in April, though part of the increase was driven by inflation

7. Schmid: Inflation remains the biggest risk, but the U.S. economy continues to show resilience

Details

UK Labour MP Resigns, Potentially Clearing the Way for Manchester Mayor’s Leadership Bid

Labour MP Josh Simons represents the Makerfield constituency in Greater Manchester. In a social media post, he said that the UK Parliament and government often act as obstacles to progress and that the current administration has failed to deliver the reforms needed by his constituency. He added that he had decided to “make way” for Andy Burnham.

Shortly after Simons announced his resignation, Burnham confirmed on social media that he would apply to the Labour Party’s National Executive Committee to contest the parliamentary by-election in Makerfield. Burnham said that his ability to drive change from Manchester was limited and that broader national reform was needed, which is why he is seeking a return to Parliament.

Burnham served as a Member of Parliament from 2001 to 2017 before becoming Mayor of Manchester. He had previously attempted to return to Parliament through a by-election, but his application was rejected by Labour’s National Executive Committee.

If Burnham successfully returns to the House of Commons, he would obtain the initial qualification required to run for Labour Party leader. Following Labour’s crushing defeat in last week’s local elections, Prime Minister Keir Starmer has faced mounting political pressure. According to reports, more than 90 Labour MPs have now called for Starmer’s resignation, although several cabinet ministers have publicly expressed support for him.

Earlier on the 14th, UK Health and Social Care Secretary Wes Streeting announced his resignation. Sources close to Streeting previously indicated that he was preparing to resign in order to run for Labour leader and had already begun seeking support from Labour MPs.

U.S. House Again Rejects Resolution Limiting Trump’s War Powers

The U.S. House of Representatives narrowly rejected a Democrat-led resolution intended to block war against Iran. The resolution stated that hostilities should cease unless authorized by Congress. The vote ended in a 212-212 tie, failing because it did not secure a simple majority.

This marked the third House vote this year on a war powers resolution related to Iran and the first vote since the expiration of the 60-day war deadline on May 1. Under relevant regulations, Trump was required to report to Congress on the war issue before the deadline. Trump had previously claimed that hostilities against Iran had been terminated.

The voting margins have continued to narrow. The previous resolution failed by a 213-214 vote, with one lawmaker voting “present.” The Senate vote was similarly close. On Wednesday, the Senate voted 50-49 to block the advancement of another war powers resolution, with three Republican senators joining nearly all Democrats in support of moving the measure forward.

Israel Says Third Round of Talks With Lebanon Held, Seeks Formal Diplomatic Relations

An Israeli government official confirmed to Xinhua News Agency on the 14th that the third round of talks between Israel and Lebanon was held that day in Washington, D.C. Israel hopes to secure an agreement that would disarm Hezbollah and establish formal diplomatic relations with Lebanon.

According to the official, the talks took place at the U.S. State Department. The Israeli delegation included Israeli Ambassador to the United States Michael Leiter and senior security officials, while the Lebanese delegation included Lebanese Ambassador to the U.S. Hadi Mouawad and former Lebanese Ambassador to the U.S. Gabriel Karam.

The talks are aimed at disarming Hezbollah and reaching an agreement to establish formal diplomatic ties between Israel and Lebanon. Israel wants to retain the freedom to conduct air and ground operations against Hezbollah before any agreement is finalized, while Lebanon demands that Israel withdraw from Lebanese territory, halt attacks on Lebanon, and stop destroying Lebanese villages near the temporary border area.

The talks are expected to continue on the 15th, although it remains unclear whether the two sides are close to reaching an agreement.

OPEC+ Production Increases Remain Mostly on Paper, but Quotas Will Continue

According to several representatives, key OPEC+ members plan to continue implementing production increase quotas over the coming months, aiming to complete the final phase of restoring previously suspended output by the end of September.

OPEC+ had previously agreed to restore roughly two-thirds of the 1.65 million barrels per day in cuts introduced in 2023. Three representatives said the alliance intends to continue gradually raising output targets over the next three months to restore the remaining supply.

However, due to disruptions to Gulf exports caused by the Iran war, most major members are currently unable to fully achieve these increases, meaning that many of the planned production hikes remain largely theoretical.

Gulf States Explore Post-Conflict De-escalation Mechanisms With Iran

According to the Financial Times, citing several diplomats, Saudi Arabia has discussed the idea of establishing a non-aggression pact between Middle Eastern countries and Iran as part of broader talks on managing regional tensions after the end of the U.S.-Israel war.

Two Western diplomats said Saudi Arabia is considering the Helsinki Accords of the 1970s—which helped ease Cold War tensions in Europe—as a possible model. They believe that post-war Iran is expected to emerge weakened but could still pose a threat to neighboring countries.

They added that a non-aggression pact is just one of several options currently under consideration.

Since the outbreak of the Iran war, Gulf states have become increasingly concerned that once the conflict ends and the U.S. reduces its military presence in the region, they may be left neighboring a battered but more hardline Islamic regime.

U.S. Retail Sales Continue to Rise in April, Though Inflation Contributed to the Increase

U.S. retail sales continued to grow in April, although part of the increase may have been driven by rising inflation, as the Iran war pushed up prices for energy and other commodities.

Data released Thursday showed retail sales rose 0.5% in April, in line with market expectations, while March’s growth figure was revised down to 1.6%.

The Iran conflict is fueling inflationary pressures. According to the U.S. Energy Information Administration, gasoline prices rose 12.3% in April.

Despite surging oil prices, consumer spending has not yet shifted significantly away from other sectors, partly because tax refunds have been larger this year. U.S. Internal Revenue Service data showed that as of April 25, the average tax refund was $323 higher than during the same period in 2025.

However, this support is beginning to fade. Economists at PNC Financial Services Group said internal data analysis suggests consumers are spending their tax refunds more quickly than last year, particularly lower-income households. They also noted that a smaller share of refund money is being used to repay credit card balances and other debts.

Schmid: Inflation Remains the Biggest Risk, but the U.S. Economy Shows Resilience

Kansas City Fed President Jeff Schmid said Thursday that inflation remains the greatest risk facing the U.S. economy, although the economy continues to display remarkable resilience despite multiple challenges, while the labor market remains broadly stable.

“I believe persistent inflation is the most pressing risk facing the economy today,” Schmid said. “Although inflation has fallen significantly from its peak, it is clear from my conversations with business leaders in the Tenth District that inflation remains too high.”

Schmid added that while the U.S. economy faces numerous challenges, it continues to demonstrate surprising resilience. Geopolitical tensions remain a major source of uncertainty.

Although the United States is less vulnerable to global energy disruptions than in the past, higher oil prices still weaken household purchasing power and increase business costs. Nevertheless, despite these headwinds, the economic fundamentals of both the United States and the Tenth Federal Reserve District remain solid.

Today’s Key Event to Watch

21:15 (UTC+8) U.S. April Industrial Production (MoM)

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