Hawkish Warsh and Declining Oil Prices Impact Risk Markets

Major US stock indexes ended the volatile week higher as cautious optimism around a possible US-Iran agreement, declining oil prices, and continued broadening beyond large-cap technology shares helped offset mixed inflation data and volatility in artificial intelligence (AI)-related stocks. Small-cap equities led the advance, with the Russell 2000 Index rising 3.9%, while the Nasdaq Composite appreciated over 0.65%. The Russell 1000 Value Index outpaced its growth counterpart for the second week in a row. 

The US yield curve flattened on the heels of Fed Chair Warsh’s comments on June 17. The 2-year/10-year Treasury yield spread moved down to 29 bps. This is a function of the move higher in two-year yields (10-year yields have been well-behaved with lower expected energy prices), and two-year yields moving higher by 15 bps after Warsh spoke. He was more hawkish than expected. 

Key Takeaways 

1. Federal Reserve Holds Interest Rates Steady but Signals Potential for Rate Hike 

Kevin Warsh chaired his first meeting as Fed chair, and the committee left the federal funds rate unchanged at 3.50% to 3.75%. The shift was in the messaging. Updated projections show officials now expect rates to end 2026 higher than they are today, a reversal from March, when most still penciled in a cut. Nine of eighteen officials now forecast at least one hike this year. The Fed also raised its year-end inflation forecast after consumer prices rose +4.2% from a year ago in May, the hottest reading since 2023. Why it matters: The Fed's pivot marks a real change in direction. After leaning toward cuts for most of the past year, the Fed is now treating sticky inflation as a bigger risk than slowing growth. 

2. Oil Prices Decline as U.S. & Iran Announce Peace Deal 

The two sides announced an agreement to end the fighting that began in late February and reopen the Strait of Hormuz, the waterway that carries nearly 20% of the world's oil. Oil dropped on the news, with U.S. crude sliding back into the mid-$70s for the first time since early March. Treasury yields also declined as falling oil prices eased inflation concerns. Despite the agreement, key issues, including Iran's nuclear program, are still unresolved. Why it matters: Higher oil has been a key source of this year's inflation pressure, so reopening a major supply route helps explain why crude and yields fell so quickly. That relief depends on the agreement holding, which is worth watching closely. 

3. Consumers Continued to Spend in May 

Retail sales rose +0.9% from the prior month, nearly double what economists had expected, and were up +6.9% from a year earlier. Higher gasoline prices lifted sales at gas stations, but spending held up across other categories too. A core measure that strips out the most volatile categories and feeds into economic growth figures rose +0.7%, a sign that the underlying pace of spending remains solid. Why it matters: The report reinforced the view that consumer spending remains strong despite higher fuel costs and inflation pressures. It increases confidence in near-term economic growth, but it also gives the Fed another reason to keep rates higher for longer. 

4. SpaceX Completes the Largest IPO in History 

The company went public on June 12, 2026, raising roughly $75 billion. Its stock jumped +19% on the first day of trading, valuing the company at more than $2 trillion, even though it is not yet profitable. Investors are treating the debut as an early test of appetite for a coming wave of artificial intelligence listings, with OpenAI and Anthropic among the companies reportedly preparing to go public later this year. Why it matters: A strong first day suggests public markets are willing to absorb very large companies that are not yet making money, a useful read on investor confidence. It also clears the way for the bigger wave of technology IPOs expected later this year.