Two big events this week pulled in opposite directions. Warsh’s first FOMC came in hawkish. Trump’s Versailles deal reopened Hormuz and knocked oil down about 15%. The two cancelled out, and that standoff is the trade.
1. What Changed This Week
Change 1 · Warsh’s first FOMC was hawkish
The Fed held at 3.50–3.75% for the fourth meeting in a row (12-0). The real news was the tone. Warsh didn’t submit his own dot, dropped forward guidance, started five working groups, and opened a review of the $6.6T balance sheet. He also ruled out touching the 2% target.
The dots moved up. The 2026 median went from 3.4% to 3.875% (one hike implied this year), 2027 from 3.1% to 3.6%. Nine officials now see at least one hike in 2026 (six see two or more), against nine who see a hold or a cut. The committee is split. Inflation got revised up a lot (PCE 2.7% to 3.6%, core 2.7% to 3.3%) and growth got cut (GDP 2.4% to 2.2%).
Markets took it as hawkish and now price a roughly 70–80% chance of an October hike. S&P −1.2%, Nasdaq Comp −1.3%, 2Y +16bp to 4.21%, dollar +0.7%, gold −1.9% to $4,248, BTC −2.3% to $64,301. The bigger point: Warsh is taking back the “certainty premium” the Fed has handed markets since 2008. Fewer promises, more two-way volatility. It feels like 2021 again. One caveat: this SEP was locked in around the Versailles signing, so the 3.6% PCE dot is probably already stale once you fold in this week’s oil drop (next).
Change 2 · The Versailles deal reopens Hormuz, and oil dumps
Trump signed the deal at Versailles, effective right away (ahead of the 6/19 date). Hormuz reopens fast, Iranian crude gets an immediate sanctions waiver, and shipping is supposed to be back to pre-war levels within 30 days. Four Iran-linked ships, including two big 2M-barrel tankers, already switched their transponders on and sailed out.
Brent broke $78, down 15% in four days (its longest losing streak this year), WTI fell to $75.46, and Cushing dropped to a 20M-barrel operating low. Cheaper oil is disinflationary, so it partly offsets the hawkish Fed. That’s why Asia could rally through it.
Don’t over-read the peace, though. Ballistic missiles were left out, the GOP is angry (Cruz, Cassidy, Graham, Pence), and the swap is lopsided: Iran gets a lot, the US mostly gets back what it had before the war. This is a 60-day ceasefire framework, not the end of the war.
Change 3 · BOJ hikes into the same week
The BOJ raised rates 25bp to 1.0%, the highest since 1995 (7:1 vote), and said it will stop trimming bond purchases from April 2027, with room for more (OIS sees about 54% for October). The Nikkei briefly traded above 70,000.
The thing to watch isn’t the hike, it’s the yen. USD/JPY hit 160.75, the weakest since July 2024, even with a hike on the board. Intervention risk is rising, and the carry unwind stays on our watch list.
