Oil has returned to pre-war levels as tanker traffic through the Strait of Hormuz rapidly normalized, yet futures now imply more Fed hikes by end-2026 than at any point in the past three months.
That pricing has pushed up the real 2-year Treasury yield, strengthened the dollar and weighed on gold, while 2-year break-even inflation has fallen alongside oil rather than on any June 17 hawkish signal.
Warsh’s second public appearance as chair sounded dovish, and the report argues lower energy prices should pull inflation down in coming months, undermining the market’s hawkish Fed narrative.
July 14 CPI is flagged as the next key test, with the biggest mispricing seen in the dollar and the very front end of the yield curve if rate hikes are priced back out.