We face a multipolar geopolitical environment: Iran/Israel, Russia/Ukraine. China/Taiwan. North Korea/South Korea, each seeking to demonstrate regional dominance. The Administration’s response has been to prioritize U.S. interests. Tariffs, the “Big Beautiful Bill,” deportations, deregulation, the Department of Government Efficiency, airstrikes on Iran’s nuclear facilities, and a subsequent cease-fire. All this activity has occurred since January. It’s been quite a dramatic six months. Business owners, investors, economists, and consumers are hesitating to make decisions. Even the Fed is holding.
The uncertainties surrounding the extent of the Administration’s policies are creating a drag on the economy. Yet North American rail freight volumes remain stable. May carload traffic rose 5.9% compared to a year ago. Year-to-date carloads through May were up 2.5%[1]. In May, 13 out of 20 carload commodity categories notched annual gains, suggesting freight demand is broadly improving. Overall, rail traffic continues to outpace 2024 levels. The AAR Freight Rail Index, which excludes coal and grain, fell 3.2% in May from April, reflecting softness in intermodal (intermodal volume grew .6% in May, the weakest in nearly two years). Data center demand and current hot weather are driving coal demand (NS and CSX are expected to order new replacement coal cars). Used rail equipment pricing and lease rates continue to be supported by current high new car pricing. GATX’s combination with Wells Fargo is a strong signal supporting the long-term economics of investment in rail rolling stock.
At the June 17/18 FOMC meeting, the Fed held its benchmark interest rate steady in a range of 4.25%-4.5%. It’s been there since January. Rates were cut 100 basis points in 2024 (the last cut was 0.25% in December). The Fed raised its projection for inflation and unemployment while lowering expected economic growth. Fed Chairman Powell, in his testimony before the House Financial Services Committee on Tuesday, June 24, stated recent economic data would have justified a rate cut, but the Fed is holding, waiting for additional data regarding the impact of tariffs on inflation. Projections now are for two 25 basis point reductions later this year. Consumer spending has slowed, and home builders are reporting that the uncertainty over tariffs is driving rising costs and making it difficult to price new home construction. Housing mortgage rates remain between 6.8% and 7%. Oil prices have dropped back to levels seen before the conflict between Iran and Israel as the ceasefire appears to be holding.
For Aero OEMs, demand for new aircraft remains high. Supply tensions are easing. Engine issues continue to delay deliveries. Airbus left the Paris Air Show with $21 billion in orders. Airbus’s orders included both A350 and A220 models (Polish Airlines LOT ordered up to 84 A220s, 40 firm with options for an additional 44 aircraft). Boeing kept a low profile, choosing to focus on the Air India Flight 171 787 Dreamliner crash, which occurred the Thursday before the Air Show’s Saturday start. The 787 had flown for over a decade without a single fatal crash. Known for fuel efficiency and long-range capability, they are a favorite for long-haul international routes. Over 1,100 Dreamliners are currently in global service.
In today’s uncertain environment, rail equipment markets are stable. Demand for commercial aircraft remains strong. Both asset classes provide long-term investment opportunities. Deregulation and an expected pro-growth tax policy favor an improving investment environment. According to Boeing, the answer is to “Focus on supporting your customers.[2]” For insights into current opportunities, Call RESIDCO.
Glenn Davis 312-635-3161
[1] Association of America Railroads, Policy & Economics, Rail Industry Overview, June 2025.
[2] At the Paris Air Show 2025, “Boing to Focus on Customers, Innovation and Partnership.”
Leave a Reply
Want to join the discussion?Feel free to contribute!