As peace broke out, the Fed dug in
What’s the Fed’s current stance on interest rates?
U.S. Federal Reserve (the Fed) chair, Kevin Warsh, ran his first meeting and left interest rates at 3.5% to 3.75% (a fourth straight hold). The number was never the story; the message was. Three months ago, the median Fed official anticipated a rate cut this year. Now, nine out of eighteen anticipate a rate increase, and the statement made no mention of any imminent rate cuts.
What makes the turnaround striking is the timing. The Fed leaned toward keeping rates higher in the same week oil was falling hard on peace headlines (the one thing that should cool the inflation it keeps citing). Warsh looked straight through it. With core prices still sticky and the job market still adding workers, he used the meeting to plant a flag on credibility rather than wait for the energy shock to pass.
Markets read it for what it was: a Fed that might indeed fight inflation, if need be. Stocks sold off into the close, the two-year yield jumped to its highest in over a year, the dollar had its best day in months, and gold fell.
What impact did the Iran peace deal have on the markets?
The backdrop should have been a gift: the U.S. and Iran reached a preliminary deal to wind down the conflict and reopen the Strait of Hormuz. Oil did what you would expect, with West Texas Intermediate sliding to a post-war low, as months of risk premium drained out. The Dow Jones Industrial Average Index even reached a record high on Tuesday.
Two things temper it. The deal is a draft, and Trump warned he could walk and resume strikes if the terms disappoint. And part of the oil move is not about peace at all but weak demand, with Chinese crude imports near an eight-year low. The relief is real, but the foundation under it is softer than the headlines suggest.
Who’s buying SpaceX stock?
The largest IPO in history kept climbing. After initially pricing at $135, SpaceX ran above $225 on Tuesday, briefly worth more than $3 trillion, before sliding back by Thursday. With only about 4% of the company’s shares trading freely, the moves were violent and driven by individual investors and index buying, not news or fundamentals.
For the market, the price itself matters less than what it signals. With an IPO pipeline estimated near $3.6 trillion and OpenAI and Anthropic waiting in the wings, SpaceX is the first read on whether the market can absorb a wave of richly valued, loss-making listings. A steady hold reads as a green light. A sharp reversal would say appetite is thinner than it looks.
What’s coming up in the markets?
The next test will be whether Hormuz actually reopens and oil keeps falling. Then, month-end will deliver first-quarter gross domestic product and May Personal Consumption Expenditures data (the Fed’s preferred inflation gauge and the next reading that will either validate its high-rate stance or undercut it). After a week when peace and a tougher Fed landed together, the question is simple: if the war premium is leaving but the Fed still wants to increase interest rates, what is driving this market now?
Listen to the latest podcast from the IG Investment Strategy Team for further insights.
