Regime Snapshot
| Growth | Inflation | Liquidity | Policy |
|---|---|---|---|
| Accelerating | Accelerating | Expanding, despite the rate hold | Market-led under Warsh, price stability is the stated priority |
The 5 Things That Matter Post-FOMC (as of June 23, 2026)
1. Warsh is building a market-led Fed. Chair Kevin Warsh has deliberately stepped back from explicit forward guidance. He wants markets pricing the policy path off incoming data and the tone of FOMC communications, not off Fed hand-holding. Price stability is his stated primary objective, and he has expressed real confidence in a productivity-led growth path. He has also noted, more than once, that the labor market is stronger than most participants assume.
2. Markets are accommodating higher rate expectations. The June dot plot shows a median fed funds projection of 3.8% for end-2026. That implies limited or no cuts this year and a higher terminal rate than previously priced. The short end has shifted hawkish, with markets now pricing roughly 50 bps of additional tightening over the coming months.
3. The long end is still betting on AI disinflation, but near-term, that thesis is being tested. The 10-year has stayed range-bound around 4.42%–4.52% because the long end continues to embed productivity-led disinflation over the medium term. But near-term, AI-related capex is more likely to be inflationary, via energy, labor, and materials demand, not disinflationary. That creates meaningful upside risk to the 10-year from current levels.
4. Equities have retraced, not broken. The E-mini S&P 500 is holding firmly above the key support at 7,495 (the 50-day MA), well above the recent low of 7,232. Even a deeper pullback toward 7,000, or the 6,800 level (the 66% Fibonacci retracement of the May rally on the daily chart), would still qualify as a healthy, normal correction rather than a trend reversal. That said, the post-IPO sell-off in SpaceX and the broader concerns around elevated equity and debt issuance in the tech/AI sector point to a real vulnerability: aggressive capital raising at exactly the moment higher rates are compressing valuations and buybacks are being deprioritized.
5. A real MOU could be the disinflation wildcard. A reliable MOU that lowers the risk of renewed oil and commodity shocks would be a meaningful relief valve, particularly for energy-importing regions in Europe and Asia. Lower imported inflation there opens the door to more monetary easing outside the US, and additional support for risk assets and equity rallies in those regions.
Our Base Case: Mid-Cycle Reacceleration, Not Stagflation
Post-FOMC, the base case hasn’t changed. If anything, conviction in AI productivity-led growth is higher. What has shifted is the balance of concern: we’re more worried about inflation reaccelerating than about stagflation. This is no longer Goldilocks. Inflation is proving stickier and stronger than the market wants to believe, and the labor market remains resilient, with signs of picking up rather than slowing down.
The Data Behind It
May CPI (released June 10) & PPI (released June 12): Headline CPI rose 0.5% MoM (after 0.6% in April) and 4.2% YoY, up from 3.8% in April, the highest annual rate in three years. Core CPI rose 0.2% MoM and 2.9% YoY, up from 2.8%. Energy contributed significantly to the headline print.
PPI added to the case, rising a robust 1.1% MoM, with core PPI (ex-food and energy) up 0.4% MoM. Together, these readings are expected to feed into a firmer May core PCE print of around 0.35%–0.4% MoM, per Nick Timiraos.
Consumer credit: Revolving credit is growing at a double-digit annualized pace. In April 2026 data (released June 5), total consumer credit rose at a 4.8% SAAR, while revolving credit grew at a 10.4% annualized rate. Lower levels of dissaving tell the same story. Dissaving tends to narrow, and saving rates tend to improve, when households feel the expansion has legs. Households are still optimistic.
This is a mid-cycle reacceleration, where long-term nominal growth is increasing at a pace higher than inflation risk. Because this cycle is likely driven by AI-led productivity growth, we’d expect inflation to eventually calm down over the very long term. That’s still far away. For now, we’re more likely to see growth and inflation reaccelerating together.
May Employment Situation (released June 5): Nonfarm payrolls came in at +172,000, well above the ~80k–85k consensus and in line with an upwardly revised +179k in April. Unemployment held at 4.3%. Average hourly earnings rose 0.3% MoM / 3.4% YoY, consistent with resilient labor demand and solid wage momentum.
May Housing Data:
- Total privately-owned housing starts: 1.177 million SAAR (down 15.4% MoM from a revised 1.392 million in April)
- Single-family starts: 882,000 (down only 1.9% MoM)
- Multifamily: 284,000, confirming the headline drop was largely multifamily volatility and builder caution, not a broad slowdown
- Existing-home sales: up 3.2% MoM and 3.2% YoY, to a 4.17 million SAAR
- Median existing-home price: $429,300, firm
For the Fed to genuinely deliver on price stability, it has to hike. The current stance is too accommodative given the reacceleration we’re seeing in both growth and inflation.
What the Market Is Pricing, and What It’s Missing
Market pricing currently treats near-term inflation as primarily oil-related, tied to geopolitical tensions and the fragile Middle East peace framework. Specifically, markets appear to be pricing:
- Rising near-term inflation expectations, driven mainly by oil and headline effects rather than the broader, more persistent AI-driven demand-pull and wage pressure
- Stronger long-term nominal growth
- Higher AI capex investment, financed through debt issuance, pushing nominal rates higher
- An expanding term premium and ongoing fiscal issuance pressure
On the other side, a large cohort of market participants still believes:
- The job market doesn’t look as strong as the data suggest (“muddle-through”), keeping the Goldilocks outlook alive
- Growth will disappoint because the Middle East peace deal is shaky, with cracks already emerging, and/or because the consumer slows
- Rate hikes can’t go materially beyond what’s already priced in
That split is exactly why markets haven’t fully repriced the hiking path, despite clear reacceleration signals across domestic demand, credit, labor, and core inflation. The picture we see is resilient domestic demand, sticky and reaccelerating inflation with both cyclical and structural components, and a Fed that’s now boxed in under Chair Warsh. The AI productivity tailwind is real and powerful medium-to-long term. Near-term, the reality is higher growth and higher inflation together, and that requires tighter policy to restore price stability.
Market Implications
A large cohort of market participants still believes the economy is weaker than the data suggest, positioning for “muddle-through” or even a stagflationary outcome instead of mid-cycle reacceleration. Because markets haven’t fully priced in additional hikes beyond current expectations, there’s elevated risk of volatility and further equity retracement if incoming data keeps supporting the reacceleration narrative.
Our base case view hasn’t changed: dips shall be bought, as long as the Fed doesn’t hike more aggressively than current earnings growth projections can comfortably absorb. The productivity-led expansion continues to provide underlying support for risk assets.
On positioning: we’re in a regime where the equity bid is more favorable than bonds versus commodities. Because of the MOU, long bonds, especially non-European bonds, are more interesting right now than long US bonds. We remain agnostic on long US bonds, especially the short end. The long end’s odds of being bid have increased, but with a large chance of persistent demand-side inflationary pressure, plus the AI dynamic, we’re not bidding US bonds yet.
Main Risk to the Current Thesis
The base case assumes a moderate reacceleration in demand-led inflation. The key downside risk: that reacceleration proves weaker than expected while MOU-driven disinflationary forces turn out stronger than anticipated. In that scenario, we get a Fed rate cut, which would mark the recent hawkish press conference as peak hawkishness, and that would largely invalidate the USD long thesis.
The bigger risk, though, is persistent inflationary pressure from a combination of AI-related demand (energy, labor, capex) and a sustained oil shock. In that environment, markets would likely price higher-for-longer rates. At the same time, equities face rising supply from increased issuance to fund heavy tech/AI capex, while buyback activity slows as companies prioritize investment over returning capital. That supply-demand imbalance in equities would be particularly damaging if elevated rate expectations aren’t ultimately backed by stronger compute demand and forward earnings growth.
SpaceX: The Risk, Live
SpaceX raised $75bn in its IPO, is spending $60bn on the Cursor acquisition (all-stock), and is issuing $20bn in new bonds to refinance the xAI bridge loan. The stock has already dropped roughly 24% from its post-IPO peak in just a few days. The combined xAI/rockets/Grok operations posted a $4.28bn net loss in Q1 alone.
This is the broader tech/AI risk crystallized in one name: massive debt and equity issuance to fund capex, while near-term profitability stays uncertain or negative. Layer that on top of a rising rate environment and you get exactly the headwind in our persistent-inflation scenario. Higher discount rates compress valuations, especially for long-duration growth assets like AI/tech, where most of the value sits far in the future. At the same time, companies are flooding the market with new equity supply through aggressive issuance, diluting existing shareholders. Buybacks are deprioritized as cash gets redirected to capex and debt service, which removes natural demand for shares.
Net result: a classic negative supply/demand imbalance for equities, amplified right when higher-for-longer rates make capital more expensive and make it harder to justify stretched multiples without clear near-term earnings acceleration.
This Week’s Setup: PCE
Recent PPI prints point to reacceleration. Combined with specific line items (airfares, portfolio management fees), this points to a hotter-than-expected core PCE print, likely around 0.4% MoM. Given the typical wedge between CPI and PCE, a hot print could trigger renewed concerns about delayed or smaller rate cuts, or even hike risk in the tails.
Even in that reaction, we’d still look to buy the dip at the levels below. The broader thesis stays intact unless we see a clear shift in the inflation trajectory.
Recent catalyst that influence this week’s setup:
The hawkish Fed tone, combined with limited forward guidance, caught markets off guard and has been the dominant driver recently.
Market Context & Macro Regime (as of Tuesday, June 23, 2026)
- Regime: Mid-cycle reacceleration in both growth and inflation. Resilient demand, a strengthening job market, and consumption catching up have pushed the economy beyond Goldilocks into a higher-growth + stickier inflation environment.
- Inflation: Reacceleration remains the dominant near-term risk. May headline CPI rose to 4.2% YoY (from 3.8%) on energy and supply shocks. Core CPI printed at 2.9% YoY, but hot PPI (+1.1% MoM, core +0.4%) signals upcoming pass-through. AI-driven capex continues to exert demand-side pressure on energy, labor, and materials.
- Growth & Labor: Solid. May nonfarm payrolls came in at +178k, with a resilient labor market continuing to contradict the popular “muddle-through” narrative. Revolving credit expansion and reduced household dissaving point to further consumption upside.
- Policy: ECB hiked last week. Chair Kevin Warsh’s debut FOMC was hawkish — prioritizing price stability while adopting a market-led framework with minimal forward guidance. The dot plot showed a median fed funds rate of 3.8% for end-2026, and short-end markets continue to price in ~50 bps of additional hikes with no cuts this year.
- Geopolitics & FX: Trump’s Middle East peace deal announcement triggered EURUSD volatility (sharp spike then reversal). Fundamentals still favor U.S. outperformance versus Europe and Asia, though a credible MOU could ease oil/commodity shocks and deliver disinflationary relief for energy importers.
- Market Reaction: Equities have retraced further this week (especially Nasdaq and growth names) amid ongoing hawkish Fed repricing and growing concerns over heavy equity/debt issuance in tech/AI. The SpaceX post-IPO sell-off is amplifying these worries. ES has broken the 7,495 level but remains well above the 50-day MA at 7,369, still within the range of a healthy correction. The long end remains anchored (10Y yield in the 4.42–4.52% range) on long-term AI productivity/disflation hopes — even as near-term AI capex acts as an inflationary force.
Levels We’re Watching
Equities (SPX/NQ)
Our thesis hasn’t changed: AI capex outpaces oil shocks, and even fear of rate hikes. Through the FOMC meeting, equities retraced but the theme held, so we kept buying the dip.
For a continuation of the bull market, we want to see either 7510–7489 range (the 33–38% Fib level on the 4-hour chart) or 7392- 7374 (the 64-66% Fib level) hold by the end of the week (Friday, June 26).
Zooming out to the daily timeframe (see chart), in case of rate-hike fear or recessionary fear from rising bond rates, the levels to watch are:
- First support: the June 10th low, which we want holding the 38% level above the 100-day MA
- Around the 7,000 level
Anything above the 60% Fib level still reads as a healthy monthly consolidation if the weekly trend turns bearish and holds the 66% Fib level, around 6,800 on the weekly chart. That’s another level we’d look to buy the dip, in case 7,000 doesn’t hold and we form a monthly consolidation instead.
Rates
The 5-year real yield has finally converged with the 10-year real yield and has risen steadily since last week’s FOMC meeting. Importantly, the 5-year segment is now increasing at a slightly faster pace than the 10-year, driving bear flattening in the real yield curve.
This marks a notable catch-up: the nominal yield curve has been bear flattening since the escalation of the Middle East conflict in late February (primarily via higher inflation expectation due to oil, while the real curve lagged until now). The convergence strongly suggests that markets have finally fully priced in a more hawkish Fed stance under Chair Warsh, moving beyond hopes of imminent easing.
Nevertheless, the shorter-end e.g. 1 year and 2 year real rate are still quite low. This shows that the FCI is still rather abundant which would support the risk assets bullish thesis further.
US 2Y: Post-FOMC, the short end is pricing in more restrictive policy, around 2 additional hikes. That tells us the market is reading the statement and press conference as hawkish. By the June 19th US close, the 2-year traded at 4.192%. And by the completion of this letter, it retrcaces a bit at around 4.15 but still in an uptrend.
US 10Y: The long end is the more interesting story. It tilted up initially, then retraced as the market digested the statement and press conference, settling back into the 4.42%–4.52% range. It closed near 4.4% on the 19th. Warsh spent real time at the end of the press conference reassuring markets there’s nothing to worry about with AI productivity-led growth, and the market appears to be reading that as somewhat deflationary over time, which is helping suppress the long end. By June 22nd European evening, the 10-year had jumped back to the upper bound of the range, trading around 4.5%. And, by June 25th during the completion of this letter, it trades around 4.42% just below the 4.414 % , the range support.
DXY/USD
Improved & Tightened USD Long Thesis
Our core USD long / EUR short thesis remains intact. One variable has shifted since our last note: the shaky Islamabad Memorandum / Middle East de-escalation has eased supply-side inflationary pressures, particularly for the Eurozone.
While fragile, this development should accelerate disinflation in Europe. Combined with the ECB’s recent 25bp hike (June) and an already fragile growth backdrop, it risks amplifying downside pressure on Eurozone activity.
Eurozone Vulnerabilities
- Growth: ECB staff projections show only 0.8% GDP growth in 2026 (downward revision), with clear downside risks from weaker confidence, real incomes, and external demand.
- Stagflation-lite risks: Higher energy pass-through, weak services demand, and cooling labor market (unemployment stable at 6.3% but vacancies/hiring intentions declining; youth unemployment ~14.8%).
- Lagarde’s latest remarks (June 22): “Upside risks to inflation and downside risks to growth overall.” She downplayed immediate second-round effects but acknowledged the shock is “too large to ignore.”
The Eurozone thus faces faster disinflation at the cost of weaker growth — a classic environment for earlier/more aggressive ECB easing relative to the Fed.
US Exceptionalism & Hawkish Edge
On the US side, persistent AI-driven demand-pull inflation (power, data centers, capex) plus potential second-round supply effects keep inflation stickier. This allows the Fed under Warsh to remain the most hawkish major central bank:
- Stronger domestic resilience
- Tech/AI tailwinds
- Reserve currency status (the “dollar milkshake” effect sucking global liquidity)
Most other central banks face weaker growth backdrops and will likely ease sooner or more aggressively. This policy divergence continues to support USD strength — DXY has already pushed above 101 post-FOMC.
Technical
Bias: Remain long USD vs EUR. We still like the setup.
Technically, the setup remains constructive for USD strength across timeframes:
- On the monthly DXY, we’re seeing a strong bounce off the major multi-year uptrend support line. Risk-reward for long DXY still looks quite good from this longer-term view.
- On the monthly EUR/USD chart, the pair remains in a clear multi-year downtrend, with the descending trendline from the 2018 peak continuing to cap upside. EUR/USD is currently trading around 1.135.
Furthermore, the 50-month and 100-month moving averages continue to reflect a bearish structural bias, even though EUR/USD is currently trading above both averages. This setup is similar to 2021, when the monthly 50 MA crossed below the 100 MA while EUR/USD initially traded above both moving averages. If history rhymes, this could be another warning that we are in a similar setup.
Following the rejection from the long-term trendline in 2021, the USD wrecking ball kicked in. As inflation surged after the post-COVID easy-money era, the Federal Reserve aggressively tightened monetary policy, driving a powerful USD rally that sent EUR/USD sharply lower.
This setup bears a striking resemblance to 2021 and hints that we may be entering a similar macro regime.
However, today’s setup is not an exact replay of 2021. While the technical structure hints at the possibility of another USD wrecking ball, the macro backdrop has changed. Unlike in 2022, the broader equity market is being supported by a powerful AI-driven earnings cycle.
In other words, a stronger USD does not necessarily imply a broad risk-off move in equities. As long as forward earnings continue to surprise to the upside, particularly among AI beneficiaries, the equity market can remain resilient even if the dollar strengthens.
History may rhyme, but it doesn’t have to repeat. The chart hints at another potential USD wrecking ball, yet this cycle has an AI-driven earnings engine. The key question is whether forward earnings growth can broaden beyond the AI winners. If the rest of the S&P 500 fails to deliver improving earnings expectations, a stronger USD could expose just how dependent this rally has been on a handful of mega-cap names.
- On the weekly EURUSD, price has broken lower and is now trading below th 50 MA. Bearish momentum is intact, but it hasn’t yet broken below the longer-term 100-week MA. Currently, 1.129, the 100 MA will serve as the next important support to break for a continuation of a downward trend.
- On the daily timeframe, EURUSD has broken down sharply and is sitting below both the 50-day and 100-day moving averages.
Before reaching our longer-term target of 1.05, we expect EUR/USD to find technical support at several key levels along the way:
1.108 – A critical pivot level. A decisive break below this area would strengthen the case for a move toward 1.10and, ultimately, our longer-term 1.05 target.
1.127 – Former resistance, now acting as support.
1.120 – Intermediate support zone.
On the 4hr, we would see that a retracement to 1.14 , and 1.150-1.152 to be rather healthy before we break lower to 1.127 and those level mentions on the daily.
The net result is asymmetric risk: the Eurozone is more exposed to stagflationary pressures (weak growth + lingering inflation), while the US tilts toward reflationary resilience. With the real yield curve now catching up via bear flattening and markets fully pricing a hawkish Fed, we see further downside in EURUSD as the clearest expression of this divergence.
Bias: Remain long USD (particularly vs EUR), with the path toward 1.10 or lower still favored unless the Middle East deal collapses or AI productivity surprises arrive materially faster than expected.
Regime Conclusion
We are not in Goldilocks anymore. We’re in a mid-cycle reacceleration where growth and inflation are rising together, the Fed is boxed in, and the AI capex story is doing double duty: it’s the reason equities keep finding buyers on dips, and it’s the reason the inflation picture is messier than the market wants to admit.
Dips remain buys. The risk that breaks that view isn’t oil or deflationary/recessionary fears. It’s the Fed having to hike by more than 75 bps into an economy that the market still doesn’t believe is overheating, as we laid out in our previous letter.