A New Era At The Fed
- Scott Poore
- 3 days ago
- 3 min read
Markets were jittery after the first Fed meeting with new Chairman Kevin Warsh. The market reacted negatively to the June Dot-plot from the Fed and Mr. Warsh's comments
with a lack of projections. The June Dot-plot showed most members, despite leaving interest rates steady for June, expect at least one rate hike in 2026. The market also took the new chairman’s style, with less projections and more concise comments as “hawkish.” However, it is a new day at the Fed and markets will have to adjust to the change. With regard to the Dot-plot, Mr. Warsh stated, “I reviewed the dot plots and when I saw the submissions, I noted that all the submissions were coming in with pencils, you know those kinds with big erasers."1 The price of oil is now trading at around $75/barrel, down 33% from its peak during the conflict. The price of gas at the pump is now below $4/gallon on the national average, which is down 13% from the peak.2 This could change the perspective of the FOMC members when the June and August inflation data is available.
Investors need to have a healthy view of fear and to not be cavalier in their investment process. However, fear when there is little reason to fear is not so healthy. With the
dawn of the U.S.-Iran conflict, the U.S. Treasury Curve made an important shift. The middle of the curve - Treasuries with 1 to 7-year maturities - have been low or inverted going back to 2023.3 However, that part of the curve has normalized over the past few months into its typical upward slope. That should be good news for markets as a steepening yield curve typically means the economy and markets are transitioning out of a period of stress toward a more stable condition.
Markets have also shown more restraint when it comes to volatility. The VIX Index (16.7) is below its historical average of 19.5, which means volatility has eased since the
first days of the U.S.-Iran conflict.4 In addition, stocks are not making substantially new lows. When more than 150 stocks on the New York Stock Exchange make new lows, that signals higher risk. The historical average of daily lows on the NYSE is 61. Over the past 3 weeks, stocks have average 66 new lows - just about par with the historical average.5 While there are some points of concern in the market, overall, staying invested at this point in time is appropriate.
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