FOMC Reality Check Meets Diplomatic Breakthrough
The FOMC meeting this week marked Kevin Warsh’s first appearance as Fed Chairman, and it left little doubt that there is a new sheriff in town when it comes to US monetary policy. Warsh displayed clear hawkish leanings, notably refusing to submit a personal dot plot projection and repeatedly stressing that the 2% inflation target remains the unwavering goal. While the Fed held policy steady, the updated projections reflected the reality on the ground with headline CPI now running at 4.2%. The committee now anticipates at least one rate hike by year-end. If President Trump was hoping for a monetary policy dove in the chair, he certainly didn’t see one at the podium during the press conference.
Treasury yields and the US Dollar both rose in response to the Fed’s more hawkish tilt. The Dollar Index (DXY) jumped back above the 100 level as it tracked the move higher in yields, with the 10-year note yield once again approaching 4.5%. Markets are now pricing in a greater likelihood of a rate hike this year, reinforcing the stronger greenback.
Gold initially sold off on Warsh’s hawkish messaging, moving in the opposite direction to bond yields and the USD as the market repriced toward a possible rate hike. However, the precious metal was able to reclaim the $4,300 level after Trump signed the Memorandum of Understanding with Iran, which dragged oil lower and eased some inflationary pressure. In terms of technical levels, support awaits around $4235, while the next key resistance to watch for is around $4410.
Oil prices dipped again following the signing of the MoU, with much of the conflict’s risk premium now removed as the Strait of Hormuz is expected to reopen. However, with crude stockpiles having been heavily depleted over nearly four months of disruptions, countries will be keen to rebuild buffers against future shocks. These restocking efforts might delay any full return to pre-war oil price levels. Adding further weight to the downside, the International Energy Agency’s latest prediction of excess oil supply in 2027 has also weighed on crude prices.
This week also saw SpaceX capture much of the market’s attention after listing on Friday. The stock has been a focal point due to its eye-watering valuation and the relative lack of major IPOs so far this year. The share price descended back below the $200 level on Wednesday with stocks succumbing to a bout of risk aversion on the hawkish Fed, to close around $192 - still well above the $135 issue price. Investors are clearly anticipating that the company will turn around its profitability in the coming years.
In summary, risk assets are breathing a collective sigh of relief following the signing of the US-Iran MoU. Yet after nearly four months of conflict, with major disruptions to oil supplies, depleted stockpiles, and damage to energy infrastructure, the inflationary legacy of the war may yet prove to be a lasting one. Oil price movements and how they shape interest rate expectations is expected to remain the prevailing driver of the broader market sentiment.
.jpg)
.jpg)
.jpg)
