No Shortage of News

While Friday’s Juneteenth holiday shortened the U.S. trading week, it did little to slow the flow of market-moving news.

Markets Embrace an Iran Milestone – For Now

Capital markets responded positively on Monday to reports surrounding a new U.S.-Iran Memorandum of Understanding (MoU) aimed at ending the recent conflict and reopening the Strait of Hormuz. The agreement called for halting hostilities and beginning a new round of negotiations covering Iran's nuclear program, free passage of naval traffic through the Strait of Hormuz, sanctions relief, and broader regional security issues. In response, Brent crude oil futures, a widely accepted benchmark for global oil prices, continued to fall, reaching levels not seen since early March, while the S&P 500 increased by approximately 1.7%.

Investor sentiment and recent capital market behavior suggest that many investors see the announcement as a meaningful step toward a more stable Middle East. However, the MoU is perhaps better viewed as a starting point than a final settlement. Several of the most contentious issues—including the future of Iran's nuclear program, the scope of sanctions relief and longer-term regional security arrangements—remain unresolved. Whether investor optimism proves justified will depend on progress during what could still be a lengthy and complicated negotiation process. Heightened market volatility is also likely to persist due to the significant impact oil prices have on all corners of the global economy, as investors watch to see if the Strait of Hormuz truly reopens as was promised in the MoU.

A New Approach at the Fed

The Federal Reserve left interest rates unchanged at Chair Kevin Warsh's first Federal Open Market Committee (FOMC) meeting, but the market's attention quickly shifted to what came next. While the Committee left the target federal funds rate unchanged at 3.5%-to-3.75%, updated projections showed a growing number of Fed officials expecting at least one rate increase before year-end as inflation remains above their 2% target. These expectations also align with Warsh’s press conference comments, which reiterated the Fed’s commitment to reining in inflation. In response, Treasury yields ticked higher and major equity indices weakened as investors digested Warsh’s more hawkish outlook. While the market is pricing in a higher Fed Funds rate by year-end, we believe the Fed will keep rates unchanged throughout 2026.

Just as notable was Warsh's approach to policy communication. The post-meeting statement was noticeably shorter than investors had become accustomed to, and Warsh broke from previous precedent and declined to provide a forward-looking interest-rate policy projection of his own. During Wednesday’s FOMC press conference, he reiterated his belief that capital markets should trade on raw economic data rather than attempt to anticipate the Fed's reaction to that data and its commentary.

Warsh’s shift in approach and communication style introduces a new source of uncertainty for investors. For years, markets have relied heavily on Fed guidance to shape expectations for future policy. Warsh appears intent on reducing that dependence, placing greater emphasis on quantifiable economic outcomes and less on central bank signaling. Whether that ultimately improves market discipline or increases volatility remains to be seen, but early indications suggest that the norms established under previous Fed chairs may not apply in this new era.

American Ledger: A 250-Year Financial Perspective

With our country reflecting this summer on the Spirit of '76, our team recounts how 2026 economic themes have evolved from our founding days.

It is easy to forget that, for over half of the nation's history, there was no Federal Reserve at all. For nearly 140 years, banks issued their own currency, reserves were scattered throughout the financial system and periods of economic expansion were often punctuated by banking panics and financial crises. When depositors lost confidence, there was no central institution capable of providing liquidity to the banking system or acting as a lender of last resort. The Panic of 1907, which featured widespread bank runs and a sharp decline in equity prices, proved especially disruptive and ultimately convinced policymakers that a more resilient financial framework was needed.

The Federal Reserve was created in 1913 when President Woodrow Wilson signed the Federal Reserve Act into law. Its original purpose was to address the weaknesses described above and provide greater stability for the nation's financial system. Over time, its responsibilities expanded beyond financial stability to include managing monetary policy, supervising banks, and helping promote maximum employment and stable prices.

The Federal Reserve Act made the institution accountable to Congress while also granting it a degree of independence from day-to-day political pressures. Members of the Board of Governors serve staggered 14-year terms, and monetary policy decisions cannot be directly overturned by either the president or Congress. That independence remains one of the defining features of the Federal Reserve and reflects a broader principle embedded in the American system of government: the belief that strong institutions should be able to serve the country's long-term interests, even amid changing political and economic conditions.

Today, it is difficult to imagine the American economy functioning without the Federal Reserve. More than a century after its creation, the Fed continues to evolve, yet its ability to make decisions independently remains central to the stability and credibility of the U.S. financial system.

Takeaways for the Week

The FOMC, now chaired by Kevin Warsh, left the target federal funds rate unchanged at 3.5%-to-3.75%
Capital markets responded positively to the release and signing of an MoU between the U.S. and Iran
New unemployment claims were largely unchanged at 225,000, versus 230,000 the week prior[JN1]

Sources

Disclosure

The views expressed represent the opinion of Ferguson Wellman. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Statements of future expectations, estimates, projections and other forward-looking statements are based on available information and Ferguson Wellman’s views as of the time of these statements. Past performance may not be indicative of future results. Ferguson Wellman, Octavia Group and West Bearing do not provide tax, legal, insurance or medical advice. This material has been prepared for general educational purposes only and not as a substitute for qualified counsel who can determine how this information applies to you. We believe the information provided is from reliable sources but should not be assumed accurate or complete.

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