Weekly Investment Update (06/18/2026)

A “memorandum of understanding” between the United States and Iran was reached this week, with  both countries’ leaders  confirmed to have signed. While some of the key sticking points are still to be finalized within a 60-day window of peace, the most important element of the agreement for markets is the opening of the Strait of Hormuz. Equity markets had mostly moved on from the initial shock of the conflict, but the peace deal at least temporarily mitigates a lingering risk to global growth and inflation, in our view, although implementation details remain unresolved and some routes remain subject to operational constraints.

The primary market reaction to this news has been a drop in the spot price of oil. WTI and Brent are trading below $80 per barrel for the first time since early March, a price point we have noted as representing a more normal, pre-conflict environment for consumers, corporate margins, and inflation.

This is welcome news for Kevin Warsh, who oversaw his first Federal Open Market Committee (FOMC)  meeting as Fed chair this week. While interest rates were left unchanged, Warsh mentioned in his press conference the creation of several task forces that will analyze and potentially challenge how the Fed operates. Of note is his desire to reduce forward guidance, underscored by a significantly truncated Fed statement at this week’s meeting. Fed Chair Warsh also abstained from submitting a “dot” in the Fed’s “dot plot,” in which the committee’s view on rates appeared slightly more hawkish than prior belief. Short-dated yields rose on the news, and the yield curve flattened. However, the key takeaway from his first meeting as chair should be that Fed credibility is alive and well.

 Taken together, these developments reduced two important near-term sources of uncertainty and, in our view, help to improve the backdrop for risk assets in the second half of the year

Pre-conflict, equity markets were broadening, as evidenced by the equal-weighted S&P 500 outperforming the cap-weighted index early in the year, but the conflict reversed some of that breadth as investors sought safety in mega-cap technology. One thing we will be watching for in the back half of the year is whether the market broadening theme returns as growth and inflation fears ease.

June FOMC: The Warsh Era Begins

What is happening: The Federal Reserve left interest rates unchanged at 3.75%, as expected at this June meeting, with no dissents. The policy statement removed the Fed’s easing bias, also in line with expectations. The first meeting under new Fed Chair Warsh took an important step toward removing the Fed’s forward guidance, underscored by a shorter and simpler policy statement that focused on the facts and cut out subtle hints on future policy. The length and content of the statement are on par with statements of the Greenspan era (Alan Greenspan served as Fed chairman from 1987 to 2006). 

Chair Warsh did not submit his views and refrained from answering questions related to the outlook during his press conference. The June dot plot was mostly as expected, though the split in views surprised markets. The committee is now split between a hike and unchanged policy in 2026, with nine participants projecting a hike. The median dot showed the fed funds rate at its current level in 2027 and 25 basis points lower in 2028. The median longer-run dot was unchanged at 3.1%.

In his press conference, Warsh announced five task forces targeting the Fed’s communications, balance sheet, use of and reliance on existing data sources, productivity and jobs in “an era of transformation,” and inflation frameworks. There was no indication that the summary of economic projections or the press conference will cease in the near future. But the outcome of the task forces is likely to bring incremental changes to the Fed’s conduct of policy, such as reducing certain channels of communication or changing the Fed’s preferred gauge of inflation. 

Why it matters: And just like that, the Fed has dropped forward guidance from its communications for the foreseeable future. In Warsh’s view, markets perform best when they react to incoming data and not to an arbitrary set of policymaker views. Furthermore, he and the committee believed guidance is not suitable at this policy juncture, as opposed to the post-GFC era, for example. 

Markets reacted negatively to the hawkish shift in the dot plot and Warsh’s lack of pushback during the press conference. His characterization of the current backdrop was more in line with an unchanged stance, reflecting his view that the level of policy restriction is uneven and emphasis on incorporating productivity and the capex cycle into the outlook.

Investors may do well to heed the advice of the new Fed chair, taking cues from the incoming data and evolving trends instead of Fed participants’ projections. In recent weeks the outlook has become increasingly constructive. Q2 real GDP growth is tracking above 2%, oil prices have fallen below $80 per barrel in June on the opening of the Strait, and we believe that inflation has likely peaked. While core inflation remains elevated, we continue to expect disinflation to unfold in the second half of this year. Extended pauses or some policy firming should not be surprising at this stage of a cutting cycle and are usually reflective of a strengthening growth backdrop. Markets currently have priced almost two rate hikes over the next year. Those adjustments, should they materialize, would not be enough enough to derail the equity outlook and, if anything, would reflect better-than-expected growth and employment, an ultimately positive outcome for earnings and equity market broadening.