Markets ended the week lower as initial enthusiasm for a peace deal between the US and Iran waned as terms of the deal were slow to emerge, were criticized by hardliners in both countries when they did, and it became clear there remains disagreement between the two sides on how to resolve some of the more contentious issues, including Iran’s nuclear program. Nonetheless, expectations that the Strait of Hormuz might soon reopen were enough to push oil down to $76/barrel, its lowest price since the outbreak of fighting in early March.
On Saturday, the deal appeared at risk as Iran said it had once again closed the Strait of Hormuz following Israeli attacks on Lebanon, which it described as “continuous violations of the ceasefire.” However, direct talks on Sunday between the US and Iran, yield what mediators from Qatar and Pakistan called “encouraging progress.”
As expected, the Federal Reserve held rates steady at its June Federal Open Market Committee (FOMC) meeting which was chaired for the first time by new Chair Kevin Warsh. As part of its meeting, the Fed updated its summary of economic projections (SEP), including its closely watched “dot plot” showing numerous officials now expect the Fed’s next monetary policy action to be a rate hike, likely by year end. For his part, Warsh abstained from providing a rate forecast but encouraged his colleagues to do so.
One noticeable change with Warsh now in charge was the length of the Fed’s post-meeting statement which was reduced from over 300 words to ~130. In addition, the statement did not include “forward guidance,” something to which Warsh had previously indicated he is opposed. On the topic of inflation, Warsh said the Fed, “has work to do on the price stability point.” The combination of the revised dot plot and Warsh’s inflation comments had the effect of pulling forward the market’s anticipated timing of a rate hike from December to October.
Wash also announced the creation of five task forces to focus on 1) Fed communications, 2) balance sheet policy, 3) use and reliance on existing data sources, 4) productivity, and jobs, and 5) inflation frameworks. The creation of the task forces show Warsh intends to introduce meaningful change at the Fed.
