Warsh's first Fed meeting captivated the entire market; preparations for a US-Iran agreement progressed steadily.
2026-06-17 19:09:30
Both sides are preparing for the signing ceremony of the agreement this Friday in Switzerland, with more details gradually being revealed. Two core provisions are included: Iran will be allowed to temporarily resume oil exports, which will put significant downward pressure on energy prices; and the US plans to establish a $300 billion Iran reconstruction and development fund. Of course, the implementation of these two benefits depends on the two sides reaching a permanent agreement to completely resolve the Iranian nuclear program issue and address the existing stockpile of highly enriched uranium.
Meanwhile, the Israeli leadership continues to publicly express strong dissatisfaction with the latest progress in the negotiations. Iran has attempted to link the agreement to Israel's military operation in Lebanon, but ultimately, Iran will likely only secure a commitment from the Trump administration to mediate the Lebanese situation, and not to use this to obstruct the implementation of the US-Iran agreement.
Despite the risk of unforeseen changes before the agreement is signed, international oil prices continue to decline. The spot price of West Texas Intermediate (WTI) crude oil has fallen to its lowest level since early March, a cumulative drop of about 36% from its peak, with the oil price premium brought about by geopolitical conflicts largely priced in. However, the price of WTI crude oil futures for December delivery is hovering around $72, returning to mid-April levels, suggesting that the period for the global oil supply chain to return to normal may be much longer than previously optimistic predictions by major investment banks.
Intriguingly, despite positive news from the US and Iran and theoretically beneficial lower oil prices for the global economy, major risk assets opened higher on Monday but then traded sideways, largely mirroring the dollar's movements. Historically, stock market investors typically react strongly to such positive news regarding risk appetite, pushing up stock indices significantly. However, this time the market reaction was unusually muted. The S&P 500's one-month implied volatility fell to its lowest level this year, completely reversing the previous surge in volatility. This unusual market calm may stem from today's crucial Federal Reserve interest rate meeting.
Can Warsh dictate the Fed's policy tone?
The market's attention is currently focused entirely on today's Federal Reserve interest rate meeting. Although the probability of a rate hike or cut at this meeting is virtually zero, the meeting is still highly anticipated—it's Kevin Warsh's first interest rate meeting since becoming Fed Chairman. Since being sworn in, Warsh has deliberately remained silent and has not made any public statements, thus significantly increasing the importance of Wednesday's post-meeting press conference.
Markets expect Warsh to announce several policy adjustments at the press conference: introducing a new inflation indicator, reducing the balance sheet, and tightening the inflation target range, in order to ease pressure from extremely hawkish officials within the Federal Open Market Committee (FOMC). Warsh has consistently favored the cut-down mean personal consumption expenditures price index (cut-down mean PCE) compiled by the Dallas Fed, which recorded only 2.3% in April, far below the persistently rising consumer price index (CPI), overall PCE, and inflation data from various surveys.
Convincing FOMC officials to soften their hawkish rhetoric would have been a huge challenge for Warsh, but the Middle East and US-Iran agreements, along with the continued decline in oil prices, provided him with strong support. Furthermore, the Fed's regularly released summary of economic projections and dot plot are likely to lag significantly behind the current market environment, which will further support Warsh's policy inclination to downplay forward guidance.
However, the dot plot and the economic forecasts from economists within the Federal Reserve may weaken the dovish and balanced rhetoric of the new chairman. If Warsh releases hawkish signals, the dollar is expected to strengthen, but pressure on the stock market will limit its gains; conversely, if the Fed's overall stance is neutral and it significantly weakens its forward guidance, the dollar may weaken. In this scenario, the euro is expected to continue its recent rebound against the dollar, but the lack of strong positive drivers within the Eurozone limits its upside potential.
The outlook for the yen and pound is unclear.
The UK's May CPI data fell short of expectations but failed to boost the pound. The market expects the Bank of England to maintain a neutral stance at its policy meeting tomorrow, and the Bank of England's final policy inclination will largely depend on the outcome of the Federal Reserve meeting tonight.
On the other hand, the USD/JPY pair tested slightly below 160, with current fluctuations merely reflecting position adjustments ahead of the Fed meeting. Bank of Japan officials are on high alert; if the Fed's statements boost the dollar, the Bank of Japan may intervene in the foreign exchange market overnight.
Meanwhile, the Israeli leadership continues to publicly express strong dissatisfaction with the latest progress in the negotiations. Iran has attempted to link the agreement to Israel's military operation in Lebanon, but ultimately, Iran will likely only secure a commitment from the Trump administration to mediate the Lebanese situation, and not to use this to obstruct the implementation of the US-Iran agreement.
Despite the risk of unforeseen changes before the agreement is signed, international oil prices continue to decline. The spot price of West Texas Intermediate (WTI) crude oil has fallen to its lowest level since early March, a cumulative drop of about 36% from its peak, with the oil price premium brought about by geopolitical conflicts largely priced in. However, the price of WTI crude oil futures for December delivery is hovering around $72, returning to mid-April levels, suggesting that the period for the global oil supply chain to return to normal may be much longer than previously optimistic predictions by major investment banks.
Intriguingly, despite positive news from the US and Iran and theoretically beneficial lower oil prices for the global economy, major risk assets opened higher on Monday but then traded sideways, largely mirroring the dollar's movements. Historically, stock market investors typically react strongly to such positive news regarding risk appetite, pushing up stock indices significantly. However, this time the market reaction was unusually muted. The S&P 500's one-month implied volatility fell to its lowest level this year, completely reversing the previous surge in volatility. This unusual market calm may stem from today's crucial Federal Reserve interest rate meeting.
Can Warsh dictate the Fed's policy tone?
The market's attention is currently focused entirely on today's Federal Reserve interest rate meeting. Although the probability of a rate hike or cut at this meeting is virtually zero, the meeting is still highly anticipated—it's Kevin Warsh's first interest rate meeting since becoming Fed Chairman. Since being sworn in, Warsh has deliberately remained silent and has not made any public statements, thus significantly increasing the importance of Wednesday's post-meeting press conference.
Markets expect Warsh to announce several policy adjustments at the press conference: introducing a new inflation indicator, reducing the balance sheet, and tightening the inflation target range, in order to ease pressure from extremely hawkish officials within the Federal Open Market Committee (FOMC). Warsh has consistently favored the cut-down mean personal consumption expenditures price index (cut-down mean PCE) compiled by the Dallas Fed, which recorded only 2.3% in April, far below the persistently rising consumer price index (CPI), overall PCE, and inflation data from various surveys.
Convincing FOMC officials to soften their hawkish rhetoric would have been a huge challenge for Warsh, but the Middle East and US-Iran agreements, along with the continued decline in oil prices, provided him with strong support. Furthermore, the Fed's regularly released summary of economic projections and dot plot are likely to lag significantly behind the current market environment, which will further support Warsh's policy inclination to downplay forward guidance.
However, the dot plot and the economic forecasts from economists within the Federal Reserve may weaken the dovish and balanced rhetoric of the new chairman. If Warsh releases hawkish signals, the dollar is expected to strengthen, but pressure on the stock market will limit its gains; conversely, if the Fed's overall stance is neutral and it significantly weakens its forward guidance, the dollar may weaken. In this scenario, the euro is expected to continue its recent rebound against the dollar, but the lack of strong positive drivers within the Eurozone limits its upside potential.
The outlook for the yen and pound is unclear.
The UK's May CPI data fell short of expectations but failed to boost the pound. The market expects the Bank of England to maintain a neutral stance at its policy meeting tomorrow, and the Bank of England's final policy inclination will largely depend on the outcome of the Federal Reserve meeting tonight.
On the other hand, the USD/JPY pair tested slightly below 160, with current fluctuations merely reflecting position adjustments ahead of the Fed meeting. Bank of Japan officials are on high alert; if the Fed's statements boost the dollar, the Bank of Japan may intervene in the foreign exchange market overnight.
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