Global markets were largely steady as attention turned to Kevin Warsh’s inaugural meeting as chair of the U.S. central bank. With officials broadly expected to maintain the current federal funds rate, the market’s immediate interest centered on how Warsh votes and the language he uses at the subsequent press conference.
Although no change in the policy rate is anticipated today, the way Warsh frames the outlook for monetary policy is the focal point for investors. President Donald Trump, who appointed Warsh, repeatedly urged dramatic rate cuts when Jerome Powell led the Fed, and has since restated a preference for looser policy while indicating he will allow Warsh discretion to act. Markets are likely to interpret Warsh’s comments through a political lens regardless, which could complicate efforts to communicate clearly.
At the same time, recent developments have shifted market expectations about the path of rates. An energy squeeze driven by the conflict in the Gulf and a string of relatively resilient U.S. economic data have increased odds of rate hikes later in the year - a possibility some individual policymakers have not ruled out. How a preliminary U.S.-Iran memorandum of understanding affects inflation and rate projections remains uncertain.
Oil and bonds
Crude prices steadied after an earlier dip under $80 per barrel, with global benchmark Brent crude hovering around $79 a barrel as yields on government bonds retreated. The immediate catalyst for the price decline appears to be reports that the U.S. will waive sanctions on Iranian oil for a defined period, and that if a final deal is reached all U.S. and UN sanctions on Iran would be lifted.
Despite those reports, major unknowns remain about how much additional oil and gas might transit the Strait of Hormuz in the coming months and about damage to energy facilities sustained during the conflict. Those uncertainties suggest volatility could persist as markets reassess supply expectations.
Equities and tech
Pressure on U.S. technology stocks pushed the S&P 500 and Nasdaq lower on Tuesday, even as the Dow closed at a record high for a second consecutive session. In a notable move, SpaceX rose nearly 5%, closing above Amazon’s market valuation at $2.646 trillion and briefly topping Microsoft at $2.92 trillion. Wall Street futures were pointing slightly higher ahead of the opening bell.
UK inflation and central bank timing
Across the Atlantic, a cooler-than-expected consumer price index print in the U.K. showed inflation holding unexpectedly at 2.8% in May. Released one day before the Bank of England’s policy meeting, the data adds weight to an expectation that the BoE will keep interest rates steady when it convenes.
Chart note
SpaceX’s market valuation reached $2.646 trillion on Tuesday, surpassing Amazon, and briefly exceeded Microsoft’s $2.92 trillion. The next largest names in market capitalization - Apple, Alphabet and Nvidia - remain above $4 trillion.
Events to watch today
- U.S. Federal Reserve interest rate decision at 2 p.m. EDT and news conference at 2:30 p.m. EDT
- U.S. May retail sales at 8:30 a.m. EDT
- G7 leaders meeting in France to discuss the global economy
Distribution note
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Market implications
Today’s Fed meeting is likely to generate outsized market reactions if Warsh’s comments deviate from expectations. With the federal funds rate widely expected to remain unchanged at this meeting, the emphasis shifts to forward guidance and any subtle shifts in tone that could influence rate expectations.
Similarly, developments around the U.S.-Iran memorandum of understanding have immediate implications for energy markets and bond yields, but the ultimate impact depends on how quickly any reported waivers or lifting of sanctions translate into increased supply, and on the restoration of production and shipping capacity following damage in the region.
Final observation
Markets are in a waiting mode: policymakers are unlikely to change rates today, but words carry weight. The new Fed chair’s voice will be parsed closely, oil market details will be digested for supply implications, and equity indices will respond to both macro signals and continuing sector rotations.