A path to resolution with Iran, the Fed’s policy stance and direction under Warsh, and an introduction to the MANGOS.
Do you have World Cup fever like me? Did you witness the hat trick from Messi, Mbappe make French soccer history, DR Congo shock Portugal, Ghana best Panama in a 94th minute win, or the USA achieve a decisive victory over Paraguay on our home turf? Each moment of this global competition has a storyline—48 countries, fans from every culture, language and background, drama and underdog shocks, iconic superstars and “last dance” appearances, and soaring national pride (I have never seen as many jubilant Scotsmen in one place as I did this weekend in Beantown).
Like Saturday’s historic New York Knicks’ NBA championship win after a 53-year drought, these events are captivating our hearts and minds, even in a time when our hearts and minds feel heavy with a mix of doubt and hope, fear and excitement, frustration and inspiration, at least when it comes to broader current events.
At press time, the U.S. and Iran have reached a deal to reopen the Strait of Hormuz. While many aspects of a lasting peace have yet to be settled, the two sides are expected to meet in Geneva on Friday after both nations’ presidents signed the memorandum of understanding late Wednesday. The agreement is said to include an extension of the ceasefire for 60 days and set up a framework for negotiations about Iran’s nuclear program. Notably, Israel is not limited by the agreement, with officials pledging to remain in security zones in Lebanon.
Oil prices tumbled to a more than three-month low following the announcement and are now trading in the mid-to-high $70s. Stock markets responded favorably to the news of a potential end to the conflict, which has amassed a sizable humanitarian toll, as well as global economic and inflation impacts.
Meanwhile, in Ukraine, the fighting continues without end. This week, Ukrainian President Volodymyr Zelenskyy met world leaders in France at the G7 Summit and got them on board for increasing military aid and air defense systems, more sanctions pressure on Russia, and approval to boost weapons production inside Ukraine. Russia was called on to make peace with Ukraine and was cast as being on “the offensive” in the conflict in a notable shift by President Trump—a sign, perhaps, that Russia’s ability to dictate terms in a peace deal has eroded.
Beyond wars, interest rates were also on the agenda this week at Federal Reserve Chair Kevin Warsh’s inaugural meeting as head of the central bank. As expected, the Fed opted to hold policy steady in a range of 3.50% to 3.75% for a fourth consecutive meeting. Also as expected, they removed the lingering easing bias implying the next policy move would eventually be a continuation of earlier rate cuts.
Noting the uncertainty and additional price pressures stemming from the ongoing conflict overseas and the ensuing energy supply shock, the statement explicitly stated the Fed will—eventually—“deliver price stability,” negating concerns new leadership may be willing to tolerate above-target price pressures indefinitely in the pursuit of a lower rate environment. There was little change in the Committee’s relatively optimistic tone regarding the ongoing solid pace of activity and the stable nature of job creation.
Most notably, however, was what was not included in the statement: additional context surrounding the Fed’s assessment of current conditions and forward guidance, or policymakers’ expectations for future policy. The Fed’s latest message was dramatically reduced from prior releases, perhaps a precursor of a new Warsh era of more succinct language and limited communication from Fed officials.
Also distinct was the tenor of Warsh’s appearance at the subsequent press conference following the meeting decision’s release. With inflation stuck above the Fed’s 2% target rate, Chairman Kevin Warsh emphasized multiple times in his press conference that the central bank will be “unambiguous and unanimous” in its commitment to stabilizing consumer prices. “The recent past need not be prologue,” Warsh said. “If we do our job, we can make strong growth, low prices and strong employment mutually compatible. What you heard from the committee today is we’ve got some work to do on the price stability front.”
In addition to this strong commitment, Chair Warsh also said that he will create five task forces to review key areas of Fed policy: communications, the balance sheet, reliance on existing data sources, productivity and jobs, as well as the inflation framework.
“Each task force will serve an objective shared by everyone in the system, shared by everyone around that table that I sat with over the last couple of days, a Federal Reserve that is clear-eyed about its mission, fit for purpose, and focused on the future,” he said.
While no official changes were signaled, this move sets the table for shifts down the road, and one to watch for will be a reduction in the Fed’s use of their balance sheet. And despite fears of President Trump’s potential influence over him, Warsh was clear that “the Committee will deliver price stability” in an unequivocal statement of his focus and intent. As such, bond yields rose and stock prices fell, though both remain near recent highs.
Following last week’s SpaceX IPO, market participants are starting to talk about how the Magnificent Seven are being replaced by the MANGOS (Meta, Anthropic, Nvidia, Google, OpenAI and SpaceX) as the next generation of high-profile tech companies. Euphoria around AI continues to drive market action, and general excitement continues to build even as public concern is rising about how fast AI is advancing, according to recently released Pew Research.
Which brings me to my final thoughts for this week. On Friday we celebrate Juneteenth, the end of slavery in the U.S. in 1865. Remember, this came two full years after President Abraham Lincoln issued the Emancipation Proclamation in 1863. And still inequality persisted, and persists even after the civil rights movement in our imperfect world.
Change is hard and messy, and progress is not a straight line. We have a lot on our plate right now to work through, in geopolitics, with technology, in monetary policy and more. Financial markets tend to reflect optimism because they look forward, and that is why investing can be so inspirational and rewarding. But we still have to do the work to live up to the promises of the future.
As we think about that work and the leadership needed, it is appropriate to pause and acknowledge that this weekend we celebrate our fathers, grandfathers, uncles and father figures on Father’s Day. Already immersed in his summer reading, my son Kenny is reading “Promises to Keep: How Jackie Robinson Changed America.” He shared a quote with me from author Sharon Robinson (Jackie’s daughter), who said: “my father taught me to flip pancakes, hit a baseball, question political leaders, solve problems and keep promises.” Thank you to all our dads whose love and example make us better equipped for the future we face.
Written by a human.