18.06.2026 - Fed: hawkish tone
Yesterday evening, the first Federal Reserve meeting under new Fed Chair Kevin Warsh took place.
As expected, the Fed left its benchmark rate unchanged at 4.25%.
Warsh, recently selected by President Donald Trump to replace Jerome Powell, struck a more hawkish tone than markets had anticipated, emphasizing the importance of maintaining price stability.
While the central bank predictably kept rates unchanged, policymakers appeared divided on the outlook. Their latest projections showed that nine officials expect at least one rate hike this year, with six of them anticipating two or more increases. Another nine members expect no change or even a rate cut.
Markets:
Equities: US futures are higher after yesterday's decline.
Bonds: Short-term yields moved higher. The US 2-year Treasury yield climbed from 4.07% to 4.22% before easing back to 4.18%, while long-term yields remained relatively stable, with the US 10-year Treasury yield at 4.45% and the Japanese 10-year yield at 2.62%.
Commodities: Oil prices continue to decline - WTI: USD 74/barrel, Brent: USD 78; Precious metals initially weakened but recovered today, with gold trading at USD 4290 - silver USD 68
Currencies: USD strengthened against major currencies
Cryptos: falling with Bitcoin at USD 66k
Volatility: After a modest reaction to the Fed decision, the VIX fell back to around 17
My View: I have consistently questioned market expectations and repeatedly warned that investors could be moving in the wrong direction. For months, I have highlighted the possibility that rate hikes, rather than rate cuts, could become the dominant theme in 2026.
Markets are not always rational. The crowd often follows momentum, and periods of excessive optimism tend to push investors in the same direction.
Looking back and see what markets did, I obviously turned cautious too early.
Falling oil prices over recent days are providing some relief from inflationary pressures. However, the situation in the Middle East remains unresolved. Even if the so called deal with Iran is signed and the Strait of Hormuz reopens this Friday, it will take days, if not weeks, before supply chains and oil deliveries normalize.
Moreover, during the 60-day negotiation period, anything can happen. Markets could once again be confronted with geopolitical headlines capable of rapidly changing sentiment.
As I have stated previously, much of the economic damage has already been done. Yet markets continue to ignore this reality and are focusing on, in their view, tremendous potential in AI.
A repricing of risk assets is still necessary, in my view.
The main argument against such a repricing is that a considerable number of institutional investors are still sitting on the sidelines, waiting for precisely such an event. This could limit the downside, as fresh capital may eventually step in.
So far, however, the market rally continues to be driven largely by retail investors. That is rarely a healthy sign and should not be ignored.
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