Economist Raghuram Rajan, Professor of Finance at the University of Chicago Booth School of Business, says the global economy is still absorbing the shocks of disrupted trade routes, tariff battles and geopolitical tension, even though headline trade volumes haven’t collapsed. Speaking to ET Now, Rajan argued that the cumulative effect of these disruptions, including the Strait of Hormuz crisis and US tariff actions, will reshape how countries think about economic resilience, even if the damage isn’t immediately visible in the data.

On energy security, Rajan was direct: a potential US-Iran peace deal does not erase the underlying vulnerability that the Hormuz disruption exposed. He noted that the strait accounts for a significant share of India’s crude, LNG and LPG imports, and said India needs a much larger strategic oil reserve than it currently has. Rajan also pointed to the need for flexible backup options, such as the ability to ramp up coal production the way China has, alongside a longer-term push toward renewables. He cautioned, however, that renewable energy carries its own supply-chain risk, since India still depends heavily on imported solar cells and wind components, and called for Indian industry to take a bigger role in building domestic alternatives — something he said hasn’t happened yet.

India needs to diversify import sources & export markets

On trade, Rajan said India is currently in a better position than earlier this year, when it faced steep tariff threats from the US. He flagged an incoming tariff tied to forced-labor concerns, set at 12.5%, slightly higher than the roughly 10% rates facing Pakistan and Bangladesh, but said the gap is manageable. A bigger risk, he said, is a separate “excess capacity” probe that could stack additional tariffs on top of the existing rate, something he hopes Indian trade officials can head off. His broader takeaway: India needs to diversify both its import sources and export markets to reduce exposure to any single shock.

Rajan also addressed the rupee’s sharp depreciation, which has fallen close to 14% against the dollar over two years. He linked the slide less to oil prices alone and more to a structural problem: India isn’t attracting enough foreign direct investment, even as remittance inflows remain strong. He questioned why domestic investment hasn’t matched the country’s strong headline GDP growth, calling it a gap between “the walk” and “the talk” that policymakers need to examine. If global oil prices hold near current levels — around $85 a barrel, assuming the ceasefire holds — Rajan said India’s current account position looks “relatively mild” rather than alarming, and even suggested policymakers may be overreacting by considering costly capital-inflow incentives like the FCNR(B) proposal.

Looking ahead, Rajan urged India to take a three-to-five-year view on critical commodity exposure, warning that the next vulnerability may not be oil but pharmaceutical inputs used to manufacture generic drugs. He called for building strategic buffers, domestic production capacity, and stronger ties with friendly supply countries — describing the recent shocks as a “wake-up call” that policymakers and industry should not let go to waste.

Inflation, the rate at which prices are increasing year over year, hit 3.8% in April. Trump’s decision to launch strikes on Iran, which resulted in it retaliating by shutting the key Strait of Hormuz shipping lane, has been largely blamed for the increase.

This is a developing story about the June 2026 FOMC interest rate decision and will be updated with further details.

The Federal Reserve on Wednesday announced that it will hold interest rates steady due to concerns about elevated inflation amid the war in Iran, as Fed Chair Kevin Warsh’s tenure leading the central bank begins in earnest.

Fed policymakers voted to leave the benchmark federal funds rate unchanged at its current range of 3.5% to 3.75%. The move follows the central bank’s decision to hold rates steady in January, March and April following three successive 25-basis-point rate cuts in September, October and December to close out last year.

The Federal Open Market Committee (FOMC), the central bank’s panel responsible for monetary policy moves, voted 12-0 to leave interest rates unchanged. Policymakers noted in the FOMC’s statement that inflation remains elevated above the central bank’s 2% goal, which it said was “in part reflecting supply shocks that have driven price increases in certain sectors, including energy.” 

They also noted that job gains have kept pace with the workforce, while reiterating support for the dual mandate of price stability and maximum employment. Policymakers added that, “Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East.”

INFLATION IS SQUEEZING AMERICAN CONSUMERS AND THE FED’S LATEST REPORT SHOWS IT’S GETTING WORSE

The FOMC also released a summary of economic projections, also known as the dot plot, which showed that nine of the 18 voting members project an interest rate hike before the end of 2026, with six projecting two 25-basis-point hikes. 

They see PCE inflation at 3.6% at year’s end, up from 2.7% in the March projection, with the unemployment rate at 4.3%, slightly lower than the prior estimate of 4.4%. They also see economic growth slowing, with the projection showing real GDP up 2.2% at the end of the year – down from a 2.4% prediction in March.

Fed Chair Warsh spoke to the media at his first post-meeting press conference on behalf of the FOMC. Warsh’s predecessor, Jerome Powell, remains a member of the Fed’s Board of Governors and a voting member of the FOMC.

“We recognize that inflation has been running well ahead of the Fed’s long-stated inflation goal of 2%. That’s been going on for more than five years. Persistently high prices are a burden for the American people, but the recent past need not be prologue,” Warsh said.

“I am pleased to report that members of the FOMC are unambiguous and unanimous – this committee will deliver price stability,” he added.

China plans to invest approximately 2 trillion yuan ($295 billion) over the next five years to develop data centers nationwide. This significant investment aims to bolster infrastructure, support digital growth, and enhance technological capabilities, positioning China as a major player in global data storage and management.

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China is gearing up to invest a massive $295 billion to advance its artificial intelligence (AI) infrastructure and research. This ambitious initiative aims to position China as a global leader in AI technology by fostering innovation across industries such as healthcare, manufacturing, and transportation. The plan will support the development of core AI components, including chips, algorithms, and data centers, strengthening domestic capabilities and reducing reliance on foreign technology.

The government’s strategic funding is also geared toward talent cultivation and establishing cutting-edge research hubs. By bolstering AI development, China hopes to stimulate economic growth, create high-tech jobs, and enhance national security. This enormous investment signifies China’s commitment to becoming a dominant force in the rapidly evolving AI landscape and challenges other nations to keep pace with its technological ambitions.

Overall, China’s $295 billion AI buildout plan underscores its determination to harness artificial intelligence for economic and strategic advantages. As the country accelerates its technological investments, it aims to solidify its position as a global AI innovator, reshaping the future of digital transformation worldwide.

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