The Iran conflict continues to influence global markets, with Brent crude peaking in late April before easing in May on ceasefire hopes. Elevated energy prices have lifted headline inflation above core measures and weighed on sentiment, while the labor market remains resilient. This mix has reduced the likelihood of near-term rate cuts, prompting the Chandler team to believe the likelihood of any action by the Federal Reserve related to a change in the federal funds rate pushes expectations for monetary easing beyond our six-month investment horizon.
In May, equities reached new highs even as Treasury yields rose on inflation data tied to energy costs. Despite some late-month relief in oil prices, markets shifted toward an extended policy pause with some risk of further tightening. Under newly confirmed Fed Chair Kevin Warsh, the Chandler team expects gradual normalization, with energy prices and ceasefire durability as key uncertainties.
The Fed did not meet in May, keeping the federal funds rate at 3.50%–3.75% after April’s unusually divided decision, which saw four dissents. Although Kevin Warsh was confirmed by the Senate as Fed Chair, Jerome Powell will remain a governor “for a period of time to be determined”. With energy-driven inflation elevated and labor markets still growing modestly, markets have priced out rate cuts for the rest of the year and have begun to assign some probability to a hike, making the June meeting the next key policy inflection point.