U.S. Policy, Federal Reserve, and Market Sentiment
The Federal Reserve's latest Summary of Economic Projections (SEP) and Chair Powell’s post-meeting comments reinforce a resolutely cautious tone, emphasizing economic uncertainty and inflation fragility. The FOMC maintained the federal funds rate at 4.50%, while the updated dot plot reveals increased divergence: 10 members favor two or more rate cuts, while seven now favor no cuts in 2025, up from four in March.
Powell emphasized the Fed’s uncertainty surrounding the inflation trajectory, particularly in light of tariff-driven price risks following President Trump’s April 2 “Liberation Day” trade measures. These tariffs are still working through the supply chain, with Powell stating that “someone will have to pay,” referencing the complex interplay between manufacturers, exporters, and consumers. He admitted the Fed is “trying to be humble” in forecasting outcomes, underscoring a deep uncertainty around pass-through pricing effects.
Despite this cautious stance, Powell refrained from giving any rate-cut timeline. Markets are now pricing in September as the earliest plausible cut, contingent on whether inflationary momentum fades or the labor market begins to deteriorate more visibly.
The chair also pushed back against political pressure from the White House. President Trump demanded up to ten rate cuts, blaming Powell for inflating federal debt costs. Powell defended the Fed’s independence, suggesting data not political rhetoric will guide the path forward. Analysts note that the central bank’s reluctance to preemptively cut is due in part to a “generationally bad inflation episode,” which undermined confidence in the Fed’s control mechanisms.
Escalating Iran–Israel Conflict: Strategic Implications
Geopolitical risk has intensified following reports that President Trump approved U.S. strike plans on Iran, though has yet to issue a final order. The build-up of U.S. forces in the Mediterranean and Arabian Seas, including two carrier strike groups and three destroyers, signals operational readiness.
Israeli strikes have reportedly hit Iran’s Arak heavy-water facility and a site in Natanz linked to nuclear weapons development. Iran has retaliated, with missile fire hitting Beersheba and causing civilian casualties. With over 639 deaths reported in Iran and 24 in Israel, the risk of a broader regional war is elevated. U.S. embassies are preparing evacuation flights from Israel, further confirming military escalation risks.
The market implication is clear: safe-haven flows are returning. Oil prices remain bid near $75.10 (WTI) despite small declines, and gold is holding near $3,385, reflecting hedging against a supply disruption scenario.
Global Macro Conditions: Bonds, Asia, and FX
Bond markets are showing stabilization as investors balance Fed indecision with long-term value. Capital Group noted that bonds are “again fulfilling their role as portfolio stabilizers.” The steepening curve combined with attractive yields is drawing long-term interest in IG credit and U.S. sovereigns, especially at the 5–10Y part of the curve.
Japanese Government Bonds (JGBs) saw a strong bid during the latest 5Y auction, with a bid-to-cover ratio of 4.58, the highest since July 2023. The 10Y JGB yield dropped 4bps to 1.415%, and the 20Y yield to 2.36%, as Middle East risk spurred demand. Analysts noted that despite talk of BoJ tightening, demand-side dynamics remain favorable for JGBs.
Meanwhile, Asian currencies are consolidating as traders digest both the Fed's message and regional instability. The Korean won, Singapore dollar, and Australian dollar were mostly unchanged overnight, although the Thai baht weakened sharply amid political instability in Bangkok following a coalition breakdown.
Asian investors have also begun diversifying away from USD assets, according to DBS strategists. This includes buying back into Singapore and Hong Kong fixed income, compressing local interest rates and contributing to dollar softness in Asia.
Commodities & Energy Outlook
Oil prices are modestly lower in Asia’s early trading due to position adjustments, but support remains due to Middle East tensions. Brent trades at $76.34, and WTI at $75.10. ANZ Research notes the market remains “very sensitive” to additional escalation in the Iran-Israel conflict. A U.S. military strike on Iranian nuclear infrastructure would likely trigger further price spikes, possibly pushing crude above $80 in the short term.
As, gold and silver remain well supported as hedges, particularly given the uncertain rate path and geopolitical risk.
The Federal Reserve's latest Summary of Economic Projections (SEP) and Chair Powell’s post-meeting comments reinforce a resolutely cautious tone, emphasizing economic uncertainty and inflation fragility. The FOMC maintained the federal funds rate at 4.50%, while the updated dot plot reveals increased divergence: 10 members favor two or more rate cuts, while seven now favor no cuts in 2025, up from four in March.
Powell emphasized the Fed’s uncertainty surrounding the inflation trajectory, particularly in light of tariff-driven price risks following President Trump’s April 2 “Liberation Day” trade measures. These tariffs are still working through the supply chain, with Powell stating that “someone will have to pay,” referencing the complex interplay between manufacturers, exporters, and consumers. He admitted the Fed is “trying to be humble” in forecasting outcomes, underscoring a deep uncertainty around pass-through pricing effects.
Despite this cautious stance, Powell refrained from giving any rate-cut timeline. Markets are now pricing in September as the earliest plausible cut, contingent on whether inflationary momentum fades or the labor market begins to deteriorate more visibly.
The chair also pushed back against political pressure from the White House. President Trump demanded up to ten rate cuts, blaming Powell for inflating federal debt costs. Powell defended the Fed’s independence, suggesting data not political rhetoric will guide the path forward. Analysts note that the central bank’s reluctance to preemptively cut is due in part to a “generationally bad inflation episode,” which undermined confidence in the Fed’s control mechanisms.
Escalating Iran–Israel Conflict: Strategic Implications
Geopolitical risk has intensified following reports that President Trump approved U.S. strike plans on Iran, though has yet to issue a final order. The build-up of U.S. forces in the Mediterranean and Arabian Seas, including two carrier strike groups and three destroyers, signals operational readiness.
Israeli strikes have reportedly hit Iran’s Arak heavy-water facility and a site in Natanz linked to nuclear weapons development. Iran has retaliated, with missile fire hitting Beersheba and causing civilian casualties. With over 639 deaths reported in Iran and 24 in Israel, the risk of a broader regional war is elevated. U.S. embassies are preparing evacuation flights from Israel, further confirming military escalation risks.
The market implication is clear: safe-haven flows are returning. Oil prices remain bid near $75.10 (WTI) despite small declines, and gold is holding near $3,385, reflecting hedging against a supply disruption scenario.
Global Macro Conditions: Bonds, Asia, and FX
Bond markets are showing stabilization as investors balance Fed indecision with long-term value. Capital Group noted that bonds are “again fulfilling their role as portfolio stabilizers.” The steepening curve combined with attractive yields is drawing long-term interest in IG credit and U.S. sovereigns, especially at the 5–10Y part of the curve.
Japanese Government Bonds (JGBs) saw a strong bid during the latest 5Y auction, with a bid-to-cover ratio of 4.58, the highest since July 2023. The 10Y JGB yield dropped 4bps to 1.415%, and the 20Y yield to 2.36%, as Middle East risk spurred demand. Analysts noted that despite talk of BoJ tightening, demand-side dynamics remain favorable for JGBs.
Meanwhile, Asian currencies are consolidating as traders digest both the Fed's message and regional instability. The Korean won, Singapore dollar, and Australian dollar were mostly unchanged overnight, although the Thai baht weakened sharply amid political instability in Bangkok following a coalition breakdown.
Asian investors have also begun diversifying away from USD assets, according to DBS strategists. This includes buying back into Singapore and Hong Kong fixed income, compressing local interest rates and contributing to dollar softness in Asia.
Commodities & Energy Outlook
Oil prices are modestly lower in Asia’s early trading due to position adjustments, but support remains due to Middle East tensions. Brent trades at $76.34, and WTI at $75.10. ANZ Research notes the market remains “very sensitive” to additional escalation in the Iran-Israel conflict. A U.S. military strike on Iranian nuclear infrastructure would likely trigger further price spikes, possibly pushing crude above $80 in the short term.
As, gold and silver remain well supported as hedges, particularly given the uncertain rate path and geopolitical risk.
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Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.