Good afternoon traders. We said Monday this was a layered week and it delivered on both fronts. The Fed spoke. Iran signed. And the two stories spent the week pulling this market in opposite directions.
The Fed Held Rates. The Dot Plot Did Not.
Wednesday the Federal Reserve held the funds rate at 3.50 to 3.75%, exactly as priced. Nobody was surprised by that part. What moved this market was the Summary of Economic Projections sitting underneath it.
The median 2026 core PCE forecast jumped to 3.3%, up sharply from 2.7% back in March. Headline PCE projections moved up to 3.6% for the year. And the dot plot itself flipped, with the median 2026 rate projection now sitting at 3.8% and a meaningful number of officials, nine of eighteen by some counts, now projecting a hike before year end rather than a cut. At the start of this year the market was pricing easing. We are exiting this week with the Fed openly signaling the opposite.
The immediate reaction told you everything. Equities dipped on the announcement, with the S&P and Nasdaq both giving back roughly half a percent to three quarters of a percent in the first hour. The sharper move was at the front end of the bond market, exactly where policy expectations live, with the two year yield jumping fast on the repricing. Kevin Warsh's press conference leaned into the hawkish framing rather than softening it, and that tone is going to sit over every data release between now and the next meeting.
Then The Other Half Of The Week Showed Up
While the Fed was busy resetting the rate path, the United States and Iran formally signed their sixty day memorandum of understanding this week, with the presidents of both countries putting pen to paper. The Strait of Hormuz has reopened to traffic and oil has cooled meaningfully off its conflict driven highs.
On paper that should be straightforwardly disinflationary, and it is part of why this was not a clean one direction week. But the fragility we flagged is still very much intact. Israel was not bundled into this signing the way it was in April, and the silence from Jerusalem this week has been the kind of silence that reads as calculation, not relief. A sixty day clock with one of the three parties watching from outside it is not the same thing as a resolved conflict. The oil market got its relief rally. Whether that relief survives the full sixty days is a different question entirely, and it is the one we are tracking heading into next week.
EUR/USD and the Bond Market
Euro spent the week testing both edges of its range and is finishing closer to 1.1500, pressured by the hawkish Fed repricing even with the Iran news providing some offsetting risk appetite. That 1.1492 to 1.1525 zone that has defended itself before is the level to watch into next week. Lose it with conviction on a daily close and the pair opens up toward a deeper retracement. Hold it again and you are likely back into the familiar 1.1585 to 1.1685 chop.
Treasuries finished the week firmly repricing toward the hawkish outcome, with the ten year sitting up near 4.49% and the thirty year close to 4.93%, both levels that reflect a market now taking a 2026 hike seriously rather than dismissing it. That is the real story under the surface this week. The Iran headline got the attention. The bond market repricing is the one that actually changes how every other asset class behaves from here.
The Bottom Line Heading Into The Weekend
This was a week where two genuinely major stories landed at the same time and neither one let the other dominate cleanly. A hawkish Fed that just took rate cuts off the table for the year. A peace memorandum that eased one source of inflation pressure while leaving the most combustible variable, Israel, sitting outside the agreement entirely.
Do not walk into next week assuming either story is finished. The PCE print due shortly will be the first real test of whether the Fed's hawkish lean was justified or overdone, and the sixty day clock on the Iran memorandum is just getting started.
Here at Cayman we are watching both threads closely on the Telegram, because either one is capable of being the headline that actually moves your account next week.
Levels, bias, and session notes all week on the Telegram. See you in the channel.