Global Finance and Trade 2: Central Bank Moves and Geopolitical Risk

Author(s): Scott Douglas Jacobsen

Publication (Outlet/Website): The Good Men Project

Publication Date (yyyy/mm/dd): 2025/06/30

Michael Ashley Schulman, CFA, Chief Investment Officer of Running Point Capital Advisors, offers expert insight into current global financial dynamics. Schulman offers timely insights into macroeconomic trends, US fiscal policy, and the global tech landscape. Schulman speaks with Scott Douglas Jacobsen about how oil price swings, tariffs, and ongoing geopolitical tensions are influencing global central bank agendas. Schulman explains how conflicts in Ukraine and the Middle East have driven up oil prices, complicating inflation forecasts as the Federal Reserve maintains a cautious policy amid persistent quantitative tightening. He discusses how a surprise Fed rate hike could shock markets, contrasts European easing with US strategy, and unpacks the new US Genius Act regulating stablecoins. He also explores whether Bitcoin now acts as a risk barometer rather than a haven. The interview was conducted on June 19. All sources are Reuters.

Scott Douglas Jacobsen: So, oil, war, and tariffs — there is a shake-up in central bank agendas. The ECB, SNB, and BOE are facing uncertainty due to geopolitical tensions. Do you have any thoughts on oil price swings, trade disputes, inflation outlooks, and how these factors interact?

Michael Ashley Schulman: Yes, they are all combining into, I guess you could call it a confusing mix — like a batter bowl of issues. Politicians and central banks are trying to shape policy amid ongoing challenges, including the continuing Russia-Ukraine war, the renewed conflict in the Middle East between Israel and Iran, and the recent spike in oil prices, which have risen by about $10 to $15 a barrel.

The key question is whether these prices will stabilize at a level that is manageable or if they will continue to rise, potentially becoming unsustainable. Historically, whenever there is conflict in the Middle East, Brent crude prices rise — and if tensions ease, prices typically come back down.

Tariff policies are still evolving as well. Policymakers are working through how trade agreements with the US will unfold, which adds another layer of uncertainty to inflation forecasts.

As for central banks — as I mentioned earlier — in the US, equities have rebounded significantly since the downturn earlier this year, but the US dollar has not regained the same ground. It remains weaker than before, which has implications for other central banks.

A weaker dollar makes it easier for developed and emerging market central banks to lower interest rates because they do not have to maintain higher rates to support their currencies. Many emerging markets and even some developed economies hold debt denominated in US dollars, so a weaker dollar makes servicing that debt less expensive when converting from local currencies. I know that is technical, but that’s the gist of it.

Jacobsen: That makes sense. So, moving to the Fed — the Federal Reserve has kept interest rates unchanged and has signalled reduced odds of rate cuts in 2025 due to renewed inflation concerns. What are your thoughts on that?

Schulman: Yes, I have been telling our family office clients since December that there is no compelling reason for the Fed to cut rates aggressively at this time.

While many people hope for lower interest rates, there has been no urgent justification. Inflation has consistently stayed above the Fed’s 2% target — closer to 3% — and unemployment has remained relatively low. In May, the unemployment rate came in at about 4.2%, which remains healthy by historical standards.

So, with inflation elevated and the labour market still stable, the Fed does not feel pressured to cut rates quickly. They want to be cautious and avoid reigniting inflation.

That is a healthy unemployment rate, so the Fed does not need to lower interest rates to stimulate employment — and it does not want to because that could push inflation even higher. The economy is still performing relatively well despite the uncertainty surrounding tariffs and the challenges businesses face when planning imports, exports, and manufacturing in response to shifting tariff policies. Economic growth continues, and consumers remain committed to spending.

Back in December, if you looked at the FOMC dot plots and listened to many analysts, the consensus was that there could be four or five rate cuts this year. I was telling our clients: none. Now, here we are in June, halfway through the year, and people are revising those forecasts down to one or two cuts. I still do not see a strong reason for the Fed to cut rates at this point.

We could see what I like to call a “Thanos snap” — where the market’s expectation for cuts vanishes. Especially now, with oil prices spiking: every $10 increase in oil prices generally adds about 0.2% to 0.5% to headline inflation, depending on the model. Some analyses estimate up to 1.44%, but a reasonable average is about half a percent for every $10 increase in crude.

At the same time, that same $10 increase typically shaves about 0.4% off GDP growth because higher energy prices slow economic activity. So central banks — especially the Fed — are watching oil prices, geopolitical risks, and tariff developments very closely. However, there is no clear catalyst or urgency to lower rates at this time. You cut rates when you have to, so the Fed wants to maintain that “firepower” for when it is needed.

Additionally, something often overlooked is that we are still in an environment of quantitative tightening. During the pandemic, we experienced significant quantitative easing; however, now the Fed is allowing approximately $60 billion in Treasuries to roll off its balance sheet each month. People are aware of this, but they often overlook it because it has been happening quietly for some time.

Letting $60 billion a month in Treasuries runoff has a greater impact on financial conditions than a standard 25-basis-point rate move — yet it gets far less attention.

Moreover, here is something very few people are considering: What if the Fed raised rates? I am not saying this will happen — but markets tend to be surprised by what they least expect. If oil prices jumped another $10 or $20, driving inflation up again, the Fed could, in theory, feel pressure to hike rates instead of cut them.

If that happened — rising oil prices and a surprise rate hike — it would effectively slam the brakes on the economy. Again, I am not predicting this, but it is important to consider it because no one is prepared for such a scenario. The market usually reacts most strongly to the surprises that almost no one expects.

Jacobsen: Hypothetically, if that did happen — if the Fed did raise rates — what would you expect?

Schulman: Yes — if that unexpected scenario played out and the Fed raised rates while oil prices were rising, it would tighten financial conditions sharply. It could drive growth and trigger market volatility. However, that is purely hypothetical again.

It would slam the brakes on the economy because higher rates would immediately drive down capital expenditures, make business borrowing more expensive, and make real estate more costly and harder to finance. Consumers would also feel the shock.

So, what would push the Fed to do that? It likely takes a sharp spike in inflation. Chair Powell is likely very conscious of his legacy at this moment. He is expected to step down in May 2026. Although the President cannot remove him sooner, it is likely that if President Trump is in office at that point, he will replace Powell as soon as his term as Fed Chair ends. So, Powell has about eleven more months to cement his legacy.

The one thing that could damage that legacy is if inflation were to come roaring back. He is more concerned about preventing a resurgence of inflation than almost anything else, so he would be willing to take decisive action to keep it under control.

Jacobsen: Meanwhile, the Norwegian central bank and other European central banks are easing policy, citing weakening inflation, which diverges from the Fed’s current stance. What are your thoughts on that?

Schulman: Yes — as I mentioned earlier, a lot of central banks around the world have been easing. The European Central Bank, the Bank of England, and many emerging market central banks in Asia and Latin America have had room to cut rates because inflation has been declining for them.

The weaker US dollar has given them even more flexibility, as they no longer have to worry as much about servicing dollar-denominated debt.

Now, looking specifically at Northern Europe and Norway, the European stock markets are performing reasonably well; however, the broader economy remains sluggish. Germany, for example, is emerging from what appears to have been a mild recession, and that recovery is gradual.

Furthermore, Europe now needs to increase its defence spending significantly. Many countries are pledging to allocate up to 5% of their budgets to defence, and that spending needs to be financed somehow.

One of the more straightforward ways to support this is to lower interest rates. Doing so makes it easier for companies to increase capital expenditures and manufacturing capacity to support defence initiatives. At the same time, governments will likely need to issue more debt to cover these expenses. Central banks may be coordinating with governments by easing policy to allow for more debt issuance at manageable costs, thereby supporting the required spending on defence.

Jacobsen: Switching gears — the stablecoin market has been making headlines. The US Senate passed legislation to regulate stablecoin market caps — the so-called Genius Act. Can you share your thoughts?

Schulman: Yes, the Genius Act has been a big topic lately. Many in the market had been anticipating it for some time, and its passage is part of what has fueled the recent surge in Bitcoin and other cryptocurrencies, even though stablecoins are a separate category.

Circle, for example, just went public with its IPO, and that offering has performed very well so far. The stablecoin market itself is peaking in some ways — with increased scrutiny and regulation now coming into force, which aims to provide clearer guardrails for market capitalization and reserve requirements.

We can look up the exact numbers, but the broader point is that regulatory clarity, as provided by the Genius Act, encourages both investors and institutions to engage more confidently with the stablecoin ecosystem.

Stablecoins are a license to print money. You take in other people’s dollars, issue them a digital currency pegged to those dollars, and then you get to invest those dollars — often in highly liquid, low-risk assets like US Treasuries that are currently yielding about 4%. So, you are effectively earning 4% on billions of dollars in deposits. It is a lucrative business model.

The new regulations have now come into effect — people were expecting them, and yes, there is excitement around this space. What we are still waiting to see, however, are broader, real-world applications of stablecoins. Right now, most stablecoins are primarily used to fund other crypto trades — that is their dominant utility at the moment.

The big question is: Where else can stablecoins add value? It is interesting — crypto originally emerged with the ethos of decentralization, bypassing centralized authorities. However, a decade or so later, the main practical use case that has gained traction is centralized: central bank digital currencies or stablecoins pegged to traditional fiat currencies distributed by large, regulated entities like Coinbase. It is pretty ironic — we call it “decentralization.”

So, yes, it is contradictory. The whole point was to “stick it to the man,” but the US dollar fundamentally backs stablecoins — so if the dollar loses value, the stablecoin loses value in lockstep. It is that simple.

What the market truly wants is for stablecoins to find applications beyond simply facilitating cryptocurrency trades. For example, could stablecoins be used more broadly for cross-border money transfers or international remittances? Eventually, could people hold stablecoins like a digital bank account, earn some interest, and then use them directly for everyday commerce — to buy a car, a refrigerator, or even a house?

The big question then becomes: Does that model threaten traditional credit card companies like Visa and Mastercard, or do Visa and Mastercard adopt stablecoin rails and strengthen their position even further? Realistically, there is a higher chance of the latter because those companies already have deeply embedded global payment networks. However, we will see how it plays out.

Jacobsen: Oil demand concerns and market jitters — recent developments in the Middle East briefly boosted oil prices by nearly 3%, and broader investor demand for safe-haven assets has been rising. Any thoughts on this?

Schulman: Yes — that is typical market behaviour. Whenever there is a geopolitical conflict or war, risk assets typically decline at least temporarily, while safe-haven assets, such as gold, Treasury bonds, or the US dollar, often experience inflows.

For example, when the US invaded Iraq years ago, the initial reaction in equity markets was for stocks to drop and safe-haven assets to rally. These short-term swings often happen immediately after conflict escalates, before the market reassesses the longer-term economic impact.

However, quickly, people tend to realize that most wars are geographically distant from core S&P 500 companies and operations, so equities often rally back after an initial sell-off. Unless a conflict escalates dramatically — for example, a nuclear event — there is usually room for risk assets to rebound and for investors to “buy the dip” if there is one.

There is some speculation that the US could deploy MOPs — Massive Ordnance Penetrators, or “bunker buster” bombs — against Iranian facilities. That remains to be seen. If such an attack were to happen, you would likely see a near-term market sell-off driven by fears of broader conflict.

However, that could become a buying opportunity because, in my view, markets would treat it as a short-term geopolitical risk. In contrast, the longer-term outlook for risk assets could remain positive.

It is also interesting to watch the narrative around so-called safe-haven assets. Bitcoin was initially promoted as an alternative safe-haven asset, but in practice, it tends to move in sync with risk appetite rather than against it. So, I have started treating Bitcoin as a risk barometer: if Bitcoin rallies overnight, it can be a good sign that equity markets may open strong the next day.

Jacobsen: Last couple of quick ones — the Nigerian Navy has reportedly stepped up anti-oil theft operations, and Russian energy policy is impacting Hungarian gas imports. Do you have any thoughts on those?

Schulman: I should know more about those specifics, but I will have to get back to you on the Russian-Hungarian gas issue.

Jacobsen: Thank you — I appreciate your time and insights today. I appreciate it.

Last updated May 3, 2025. These terms govern all In Sight Publishing content—past, present, and future—and supersede any prior notices. In Sight Publishing by Scott Douglas Jacobsen is licensed under a Creative Commons BY‑NC‑ND 4.0; © In Sight Publishing by Scott Douglas Jacobsen 2012–Present. All trademarks, performances, databases & branding are owned by their rights holders; no use without permission. Unauthorized copying, modification, framing or public communication is prohibited. External links are not endorsed. Cookies & tracking require consent, and data processing complies with PIPEDA & GDPR; no data from children < 13 (COPPA). Content meets WCAG 2.1 AA under the Accessible Canada Act & is preserved in open archival formats with backups. Excerpts & links require full credit & hyperlink; limited quoting under fair-dealing & fair-use. All content is informational; no liability for errors or omissions: Feedback welcome, and verified errors corrected promptly. For permissions or DMCA notices, email: scott.jacobsen2025@gmail.com. Site use is governed by BC laws; content is “as‑is,” liability limited, users indemnify us; moral, performers’ & database sui generis rights reserved.