Sunday, June 28, a busy macro weekend with three central banks in different gears, and inflation, rate, and yield data painting a complex picture. Here is the state of play.
The Fed: Steady Rates, Hawkish Tone
New Fed Chair Kevin Warsh chaired his first FOMC meeting on June 17, leaving rates unchanged at 3.50%-3.75%, in line with market expectations. But the forward guidance was notably hawkish.
The updated dot plot shows 9 of 18 participants expect at least one rate hike in 2026 (up from 4 in the March projection). The median end-2026 rate forecast rose to 3.8% from 3.4% previously. Only one participant sees a cut in the next six months.
Warsh stressed the Fed's "unambiguous and unanimous commitment" to price stability roughly a dozen times in his press conference. The statement also dropped language hinting at an easing bias, replacing it with a data-dependent, neutral tone.
Markets now price in one 25bp hike by autumn 2026, with some probability of another in 2027.
The ECB: First Hike in Three Years
The European Central Bank raised rates by 25bp on June 11, its first hike since 2023. The deposit facility now stands at 2.25%, and the main refinancing rate at 2.40%.
The decision was unanimous and driven primarily by energy price increases from the Iran war pushing inflation forecasts higher. The 2026 headline inflation projection was revised to 3.0% from 2.6% in March, while the growth forecast was cut to 0.8%.
ECB President Christine Lagarde said second-round effects from higher energy costs, including food and goods prices, "have started to appear in recent weeks," signaling that inflation pressures are spreading beyond the energy line item.
The ECB made no commitment to further hikes but said it stands ready to act again if price pressures persist.
Bank of Israel: Waiting on the Fence
The Bank of Israel has been cautious, the benchmark rate stands at 3.75% after a 25bp cut in late May. The next decision is July 6.
Inflation remains relatively contained, the April CPI came in at 1.9%, within the 1%-3% target band for nine consecutive months. The Bank's March staff forecast sees 2026 inflation at 2.2%, near the midpoint.
The shekel has strengthened notably, trading around 3.00 to the dollar, compared with 2.8-2.9 earlier in the month. A stronger shekel helps curb imported inflation but could pressure exporters.
Bond Yields: A Global Pricing Picture
Oil prices fell sharply in June back to pre-Iran war levels, Brent around $72-74 per barrel, WTI below $70, on the back of a US-Iran MOU establishing a 60-day negotiation period and the reopening of the Strait of Hormuz to tanker traffic.
Despite falling energy prices, global government bond yields remain elevated: the US 10-year at approximately 4.37%-4.38%, the UK at 4.73%, Japan at 2.60%.
The term premium continues to push longer-dated yields higher amid fiscal risks and sticky inflation, even as central banks lean hawkish.
The Bottom Line
Investors face a macro landscape where the three key central banks are out of sync: the Fed on hawkish hold, the ECB climbing, and the Bank of Israel easing. The overall picture, inflation that won't quit, energy that's calming, and bonds that remain expensive, creates a complex environment for strategy-setting.
