Three major central banks are moving in opposite directions, while the Fed under Kevin Warsh signals caution with a hawkish lean, the ECB already raised rates in June for the first time in three years, and the Bank of Israel continues its easing cycle. The global macroeconomic picture is far from uniform.
The Fed: Warsh's new era
New Fed Chair Kevin Warsh held his first press conference on June 17 after rates held steady at 3.50%-3.75%. Warsh took a fundamentally different approach from his predecessor, replacing detailed forward guidance with a stripped-down statement and declining to submit his own dot-plot projection.
"We need to start from first principles, ask hard questions, examine current practices, and consider alternatives," Warsh said as he announced five task forces covering communications, the balance sheet, data sources, productivity and employment, and the inflation framework.
The updated SEP projections reflected a hawkish shift: the median end-2026 rate rose to 3.8%, up from 3.4% in March, a level implying at least one rate hike by year-end. Of 18 committee members, nine see rates above the current level. The 10-year US Treasury yield fell to 4.41% (Tuesday), from 4.50% earlier this week.
ECB: Inflation accelerates back
The European Central Bank raised rates by 25 basis points on June 11, its first such move since 2023. The deposit facility rate stands at 2.25%, the main refinancing rate at 2.40%, and the marginal lending rate at 2.65%.
The move came amid resurgent inflation: eurozone inflation rose to about 3.2% in May on higher energy prices linked to Middle East tensions. The ECB revised its 2026 inflation forecast upward to 3.0% (from 2.6%), while cutting its growth forecast to 0.8%.
Markets are pricing in additional hikes, estimates suggest two to three total increases by end-2026. German 10-year Bund yields trade around 2.87%-2.92%, reflecting rising inflationary pressure. The next ECB policy meeting is scheduled for July 22-23.
Bank of Israel: Going the other way
In stark contrast to the Fed and ECB, the Bank of Israel is in easing mode. The Israeli rate stands at 3.75% after a 25 bp cut on May 25, the first in an expected series.
Prediction markets show an 89%-92% probability of another 25 bp cut at the July 6 meeting, amid moderating inflation (around 1.9% YoY) and a strengthening shekel. The shekel trades around 2.98-2.99 per dollar, its strongest level in months.
Governor Amir Yaron has previously signaled room for one or two more cuts by early 2027. The 10-year shekel-denominated government bond yield trades around 3.67%, down from a monthly average of about 3.98% in May.
What the experts are saying
Lyn Alden published her June newsletter titled "The Wild West," describing a shift from the era of linear progress and global order to a fragmented, multipolar world marked by fiscal dominance, trade tensions, and AI-disrupted information. Alden recommends her three-pillar portfolio: profitable equities, commodities and hard money (gold, bitcoin), and cash equivalents.
David Beckworth of the Mercatus Center devoted his June podcast and publications to the Fed's new policy framework and the shift toward NGDP targeting. In a special episode with Bryan Cutsinger, Peter Ireland, and Will Luther, he analyzed lessons from the Fed's framework review.
In FX markets, the euro strengthened to around 1.136-1.137 per dollar, a slight increase from the ~1.134 zone last week, on expectations of further ECB tightening. The DXY dollar index edged lower to 101.50, following multi-month highs.
The bottom line
This week presents a fragmented macro picture: the Fed signals "higher for longer" with a risk of further tightening, the ECB enters a new tightening cycle driven by energy inflation, and the Bank of Israel is expanding its monetary easing space. Investors need to adjust portfolios to a world where three major central banks are moving in opposite directions, a rare scenario that amplifies volatility in bond and FX markets.
