Goldman Sachs — STOXX 600 12-Month Target Lifted RAISED

Goldman raises STOXX 600 12-month target to 660; flags AI-led earnings resilience and a wide US-vs-Europe valuation gap

In a note dated Friday and surfaced this morning, Goldman Sachs raised its 12-month STOXX 600 price target to 660 — about 5.4% upside from the 626 close — alongside a 3-month target of 640 and 6-month target of 645. The desk attributes the call to “solid nominal growth, positive revisions in energy, and resilient margins across the rest of the market,” plus optimism on AI investment. Goldman forecasts STOXX 600 EPS growth of 10% in 2026 and 5% in 2027. Forward P/E sits at 17.55 versus S&P 500 at 27.94 — the desk argues international flows are still finding Europe attractive at this gap.

Nick Timiraos (WSJ) — Fed-succession overhang sharpens SATURDAY SPEECH

Timiraos: Powell — now Governor — warns at JFK Library against policy-driven Fed removals; Warsh wants to rethink inflation measurement

WSJ chief economics correspondent Nick Timiraos relayed Governor Jerome Powell’s Saturday-night acceptance of the JFK Profile in Courage Award in Boston. Powell delivered what Timiraos called a “pointed warning, wrapped in abstraction” about politicization of monetary policy. The Fed’s speeches filter now lists “Chairman Warsh,” with Powell tagged Governor. Separately, Timiraos noted that Chair Warsh wants to rethink inflation measurement by stripping the most volatile components — the Dallas Fed’s trimmed mean is already running closer to 3%.

Yardeni Research — Go Global QuickTake

Yardeni: “Go Global” should outperform when Strait of Hormuz reopens — EM ex-China +39.0% YTD vs SPX +10.9%

Yardeni reiterates the “Go Global” overweight ahead of a Strait-reopening trade. EM ex-China (EMXC) is up 39.0% year-to-date versus the S&P 500’s +10.9% and emerging-markets EEM at +25.4%; South Korea +28.0% YTD, Taiwan +14.4% in May alone. He cites the FIBER industrial-materials index — copper, aluminum, oil — rising with EM equities, and labels AI infrastructure spend “the source of global reflation.” Europe, Japan, and EM petroleum-importers should outperform short-term on a Hormuz reopening. The US MSCI forward P/E sits at 21.5 versus ACW ex-US MSCI at 14.2 — a wide valuation gap that leaves room for overseas multiple expansion.

Yardeni Research — Consumer Staples QuickTake UNDERWEIGHT

Yardeni: Underweight Consumer Staples — 22.2x forward P/E vs SPX 21.2x against the lowest LTEG of any S&P sector

Yardeni recommends an underweight on S&P 500 Consumer Staples. The sector is up 6.5% year-to-date versus the S&P’s +10.7%, second-worst over the current bull market since October 2022 at +30.7%. Sector concentration is high: Walmart, Costco, P&G, Coca-Cola and Philip Morris account for ~75% of sector market cap. The long-term earnings-growth consensus is 8.4% — the lowest of any S&P sector. Forward P/E is 22.2 versus the index at 21.2 and Tech at 24.4 — the market is paying nearly a Tech multiple for 6.8% 2026 EPS growth versus Tech’s 47.2%. Walmart trades at a 39 forward P/E, above Amazon’s 29.

Iran Strike Cluster — cross-tape implications

Bessent on Fox: Iran’s “big mistake” was attacking GCC neighbors; Kharg Island shut, Schnabel can no longer look through Iran-war inflation

The weekend escalation has hardened the macro-pressure picture even as US futures held. Treasury Secretary Bessent told Fox News that Iran’s “big mistake” was attacking GCC neighbors, which has made previously opaque allies “very compliant” on freezing Iranian accounts — Kharg Island oil loading is shut, forcing the Iranians to “start taking down the wells.” ECB’s Isabel Schnabel signaled overnight she can no longer look through Iran-war inflation as price pressures spread beyond energy. A U.S. base in Kuwait was reportedly struck by a ballistic missile (intercepted), injuring five U.S. personnel. The IDF expanded operations in Lebanon after capturing Beaufort Castle. Polymarket’s “U.S. x Iran permanent peace deal by June 30” market sits at Yes 30% / No 70%. The European-rates corollary — an ECB now openly hawkish on the Iran shock — is the new cross-tape risk for U.S. duration desks.

Charlie Bilello (Creative Planning) — weekend chart pack

Bilello: U.S. bond market drawdown extends to 70 months — longest in history — while South Korean stocks have more than quadrupled in 17 months

Creative Planning’s chief market strategist Charlie Bilello posted Sunday evening that the S&P 500 closed out the week hitting four straight all-time highs (SPY $756.48, +0.25%), while the U.S. bond market is now in a 70-month drawdown — the longest on record. His third weekend note flags that South Korean stocks have more than quadrupled over the last 17 months, trouncing every other country index over the window. The three data points together form the regime traders are entering Monday in: equities at records, duration historically buried, and leadership rotating outside the U.S. into AI-semis hubs like Korea and Taiwan. The 200-day on the S&P remains the “buyable” floor reference; the 9-week win streak that Sonders flagged is the upside marker.

VIX Central — VIX Futures Term Structure

Vol curve: M1 16.24 / M2 16.62 / M3 16.78 — shallow contango, no sustained war-premium yet

VIX Central’s front-three futures sit at M1 16.24, M2 16.62, M3 16.78 — a shallow contango of about 3.3% from front to third month. With spot VIX at 15.77, futures are only modestly above cash. The flat-to-low slope indicates the volatility complex has not priced a sustained Mideast war premium — if Iran retaliation escalates, this is the curve that would steepen first. Pair with Goldman’s vol desk note that “skew is broken” with no fear of downside left: positioning is one-sided enough that an unexpected leg up in geopolitical risk would force aggressive convexity buying.

Goldman Sachs Vol Desk — client conversation pivot

“Skew Is Broken”: Goldman’s vol desk says there is no fear of downside left in client conversation

A Goldman Sachs Sales & Trading note circulated by The Market Ear and ZeroHedge over the weekend frames the regime change in client conversation: from “make it stop!” in March to “wow, this is still going up?” in May. The desk says downside protection demand has collapsed and skew has compressed dramatically. The absence of fear about a left tail is, historically, as much a contrarian flag as a momentum confirmation — a setup that pairs with Hartnett’s “long humiliation, short hubris” framing as the late-cycle warning desks are starting to internalize.

Yardeni Research — Morning Briefing OUT OF CONSENSUS

Yardeni: Fed Turning Hawkish — calls July funds-rate hike after a tightening-bias pivot this month, against a Street that doesn’t see a hike until late this year at the earliest

In today’s Morning Briefing, Dr. Ed Yardeni and his team argue the FOMC will raise the federal funds rate in July after pivoting to a tightening bias at this month’s meeting — a call that puts him squarely outside Street consensus, which still doesn’t expect a hike until late this year. The framework: a resilient economy, a stable labor market, rising inflation, and recent statements from Fed officials all suggest a hawkish recalibration is already underway. Yardeni also takes a sanguine view on rising consumer debt and credit statistics, arguing the headline numbers overstate the risk on closer inspection.

Lance Roberts (Real Investment Advice) — retiree risk management

Roberts: trim 10–20% on a 40-week MA violation or breadth collapse, park in short-duration Treasuries or money-market above 4%

Lance Roberts at RIA argues the current setup justifies modest defensive trimming for retirees, distinguishing risk management (graduated 10–20% reduction) from market timing (binary in/out). He flags that the S&P 500 has logged nine consecutive weeks of gains and closed Friday at the cash record, even as the median index stock sits 13% below its 52-week peak, breadth remains weak, positioning is stretched, seasonality is the worst window of the year, and the political cycle is historically poor. The procedure: sell 10–20% on a 40-week MA violation or a breadth collapse, park proceeds in short-duration Treasuries or money-market funds yielding north of 4%, and rebuild in tranches when the index reclaims the 40-week MA.

RIA Team Commentary — savings rate overhang

RIA: historically low personal savings rate is the structural risk the late-2026 consumer is not pricing

The RIA team flags one of the most under-appreciated risks in the late-2026 outlook: the historically low personal savings rate and its implications for future consumption. Spending is being supported in real time by a savings drawdown that mathematically cannot continue, and any normalization of the savings rate from current depressed levels would be a direct drag on PCE. The team positions this as a structural overhang — aligned with the BEA’s April release showing the saving rate compressed to 2.6% — that the late-2026 consumer narrative has not yet priced.

Mohamed El-Erian — weekend Substack + CNBC Squawk Box

El-Erian: Middle East war’s inflationary impact has been more muted than feared, but growth drag and policy complications continue to build

El-Erian appeared on CNBC’s Squawk Box this morning, posting a 20-minute-old thank-you to the anchors tagged #economy #markets. His companion Substack post from Sunday night frames the global picture: data from the last few days confirms the Middle East war’s inflationary impact on the global economy is more muted than the early-conflict consensus, but the growth drag and policy-coordination costs are mounting. The bifurcation matches the Bowman / Jefferson / Waller framing — look through the energy shock for now, but be ready to act if expectations begin to drift.

BofA Michael Hartnett (via The Market Ear / ZeroHedge)

Hartnett unveils the post-bubble playbook: long bonds, long defensives, long the underperformers — “long humiliation, short hubris”

BofA’s Michael Hartnett laid out the post-bubble playbook in a weekend Flow Show captured by The Market Ear and ZeroHedge: long bonds (with the 10-year yield expected to drop about 50 bps in the six months after market tops), long defensives, and equity sectors that dramatically underperformed in the last months of the bubble. He frames it as the classic “long humiliation, short hubris” rotation — the trade that has historically paid out once the AI-led blowoff exhausts itself. Pair with Goldman’s vol desk note that skew is broken: the volatility complex is implicitly stacking against this outcome.

ZeroHedge — Iran Deal Framework

Trump toughens Iran MOU terms; Bessent: Tehran’s “big mistake” was attacking GCC neighbors

Per NYT Sunday reporting flagged by ZeroHedge, President Trump has tightened the proposed Memorandum of Understanding terms with Iran and sent them back for consideration, including limits on unfreezing Iranian funds. Iran’s Tasnim says Tehran will draft its own counter-amendments. Treasury Secretary Bessent told Fox News that Iran’s “big mistake” was attacking GCC neighbors, which made previously opaque allies “very compliant” on freezing Iranian accounts; Kharg Island oil loading is shut, forcing the Iranians to “start taking down the wells.” A U.S. base in Kuwait was reportedly hit by a ballistic missile (intercepted), injuring five U.S. personnel. Netanyahu meanwhile ordered the IDF to expand operations in Lebanon after capturing Beaufort Castle. Polymarket’s “U.S. x Iran permanent peace deal by June 30” market sits at Yes 30% / No 70%.

ZeroHedge — overnight macro brief

DXY & crude firm as U.S.–Iran deal remains elusive; Europe primed for modestly lower open

ZeroHedge’s morning macro brief flags DXY and crude firming as the Trump–Iran framework deal remains unsettled, with Tasnim reporting Iran will write its own amendments rather than accept Trump’s revisions. European futures pointed to a modestly lower open despite the AP / Sunday news cycle, with focus on U.S.–Iran headline risk and the overnight Asia tape. The companion follow-up notes DXY firming with energy benchmarks amid the U.S.–Iran flare-up, even as U.S. stocks stayed firm on NVDA / MSFT PC-chip news.

investingLive (ForexLive) — Hormuz tape

Iran navy claims 15 vessels including four oil tankers cleared the Strait of Hormuz in the past 24 hours; Schnabel turns hawkish on Iran-war inflation

Per investingLive (formerly ForexLive), Iran’s navy claims 15 vessels including four oil tankers cleared the Strait of Hormuz in the last 24 hours — a notable through-rate given the broader Hormuz / Kharg disruption. The site’s Sunday/Monday tape also flags another likely ballistic-missile interception near Ali Al Salem Airbase in Kuwait; ECB’s Schnabel saying the bank can no longer look through Iran-war inflation as price pressures spread beyond energy; and China tightening outbound investment rules to curb tech and data transfers.

investingLive — Eurozone manufacturing PMI

Eurozone manufacturing activity loses steam as April stockpiling surge fades in May; final prints come in mixed

Final May manufacturing PMI prints across Europe arrived mixed-to-slightly-above flash: Germany 50.1 (vs 49.9 prelim), UK 53.9 (vs 53.7), Italy 52.9 (vs 51.9 expected), France contracting more sharply as supply-chain disruption from the Hormuz closure intensifies, and Spain easing as the April safety-stock surge unwinds. The euro-area composite shows momentum coming off the boil as the stockpile-driven uplift fades. China’s RatingDog / S&P Global PMI eased to 51.8 in May from 52.2 in April, the sixth straight month above 50, with input-price inflation easing for the first time in six months.

investingLive — Week-Ahead Calendar

Heavy data week: ISM Manufacturing today, ISM Services and ADP later, U.S. Non-Farm Payrolls Friday, Canadian jobs — NFP the marquee event for Fed expectations

investingLive’s week-ahead spotlight flags eurozone HICP, U.S. ISM Manufacturing today, U.S. ISM Services and ADP later in the week, U.S. Non-Farm Payrolls Friday, and Canadian jobs data. The note frames this as a heavy data slate front-loaded against the Iran-war headline overlay, with NFP the marquee event for Fed expectations. Bessent’s comments on the Iran blockade — that any blockade will be unwound slowly — reinforce a slow-de-escalation base case for the energy complex.

CNBC Markets — Premarket Movers

NVDA debuts RTX Spark for PCs with Microsoft, Dell and HP — Dell +32.8% premarket; Berkshire announces $6.8bn Taylor Morrison acquisition

CNBC’s premarket roundup leads with Nvidia jumping into PCs with the RTX Spark chip debuting in new laptops from Microsoft, Dell and HP. Arm, IBM and HPE soared in sympathy as the “reinvention” trade extends the software rally. Berkshire’s $6.8 billion acquisition of Taylor Morrison is the headline deal — with Buffett spotlighting CEO Greg Abel’s dealmaking. Top premarket gainers: Dell +32.8%, NetApp +22.4%, ServiceNow +14.4%, IBM +12.7%, HPE +12.6%. Bottom: Clorox −6.4%, RMD −6.3%, Intel −5.1%. A BofA note flags NVDA and AAPL as June upside candidates; Wells Fargo bullish on Microsoft’s homegrown AI push; Citi flags a struggling retailer; Morgan Stanley publishes a dividend-initiation list.

The Kobeissi Letter (@KobeissiLetter) BREAKING

Kobeissi: U.S. military strikes Iranian targets at Goruk and Qeshm Island

The single largest overnight catalyst on the desk-leak feeds: The Kobeissi Letter (~1.9M followers) posted at ~12:30 ET that “the U.S. military has conducted strikes on Iranian targets in Goruk and Qeshm Island, Iran.” The post drew 322K views and 581 reposts in seven hours and is the proximate driver of the WTI +3.61% / Brent +3.05% / VIX +2.94% / DXY +0.15% combination overnight. A companion 6-hour-old Kobeissi post relays Nvidia CEO Jensen Huang pushing back on the AI-job-loss narrative — the morning’s anchor data point for desks keeping leadership exposure (Mag 7, semis) on through the FOMC blackout.

Walter Bloomberg (@DeItaone) — Hormuz tape

Iranian Revolutionary Guards Navy reports 15 ships including four oil tankers cleared the Strait of Hormuz

DeItaone, the fast desk-leak aggregator, posted approximately an hour before the cash open that Iran’s Revolutionary Guards Navy says 15 ships including four oil tankers have passed through the Strait of Hormuz. The headline sits inside an active overnight Iran cluster — alongside posts on Qalibaf calling out a U.S. naval blockade, and Kuwait warning Iranian attacks undermine de-escalation — that is moving energy and risk sentiment into the U.S. cash open. The takeaway: tanker traffic is still flowing through the chokepoint despite the escalation rhetoric.

Walter Bloomberg (@DeItaone) — Qalibaf

Iran’s top negotiator Qalibaf accuses U.S. of ceasefire noncompliance via a naval blockade

DeItaone relayed a post from Iran’s top negotiator Qalibaf framing a U.S. naval blockade and Israeli escalation in Lebanon as evidence of U.S. noncompliance with the existing ceasefire. The headline lands in the same overnight Iran cluster as the Hormuz tanker count and the Kuwait warning, and it is the language Tehran is publicly using to justify whatever response follows. Desks reading the cluster ahead of the U.S. open treat it as a signal that the geopolitical premium in WTI/Brent should stay bid into the session.

Walter Bloomberg (@DeItaone) — Kuwait

Kuwait foreign ministry says Iranian attacks undermine regional de-escalation efforts

A third leg of the overnight Iran cluster — Kuwait’s foreign ministry on the wire saying Iranian attacks undermine efforts to reduce tensions. The post is the GCC’s public response to the weekend’s escalation and lands ahead of the U.S. cash open as a reminder that Gulf states are openly siding against further Iranian retaliation. For traders reading desk-leak feeds, the combination of Hormuz tanker flow, Iranian rhetoric, and Kuwaiti pushback is what shaped the overnight energy bid.

Liz Ann Sonders (@LizAnnSonders) — Schwab CIO

Sonders: S&P 500 closes May with its ninth consecutive weekly gain

Schwab’s chief investment strategist Liz Ann Sonders flagged about 11 minutes before the run that the S&P 500 ended May with its ninth consecutive weekly gain. The note (with a chart attached) is the cleanest desk-level marker of the May tape that ends today: an uninterrupted, eight-week-plus advance carrying the index into record-high territory just as June begins. Sonders’ companion Monday-morning post maps the share of stocks in each sector trading at four-week and fifty-two-week highs — the breadth read desks use to decide whether the May rally was narrow Mag-7-only or whether participation has broadened.

Nick Timiraos (@NickTimiraos) — WSJ chief Fed correspondent

Powell, accepting JFK political-courage award, draws a line on Fed removals over policy disagreements

WSJ’s chief Fed correspondent Nick Timiraos posted around 11 hours before the run that Governor Jerome Powell, accepting the JFK Profile in Courage Award at the JFK Library Saturday night, named no president and spoke in lofty generalities — but got specific on one point: letting a president remove Fed officials over policy disagreements would end the central bank as we know it. The post lands inside the live Fed-independence / Fed-succession debate that has been the dominant macro framing all spring. It is the only on-the-record Powell signal of the weekend.

Charlie Bilello (@charliebilello) — weekend chart pack

Bilello: S&P 500 closed May at fourth straight all-time high; U.S. bond market drawdown extends to 70 months, longest in history; South Korean stocks more than quadrupled in 17 months

Creative Planning’s Charlie Bilello posted Sunday evening that the S&P 500 closed out the week hitting four straight all-time highs with the SPY ETF at $756.48 (+0.25%). A second post flags that the U.S. bond market has now been in a drawdown for 70 months — by far the longest on record. A third post: South Korean stocks have more than quadrupled over the last 17 months, leading every other country index over the window. The three notes together are the supporting macro under the rotation tape that has equities printing records while duration stays buried and leadership rotates outside the U.S.

The Kobeissi Letter — Jensen Huang on AI & jobs

Kobeissi relays Nvidia CEO Jensen Huang pushing back on the “AI is taking jobs” narrative

Kobeissi relayed Nvidia CEO Jensen Huang’s overnight comment on the AI/jobs debate, pushing back on the “AI is taking jobs” framing. The post timestamp puts it ~6 hours before the run, in a weekend that paired the AI build-out narrative with a tape that just finished its ninth consecutive weekly S&P gain. The relevance for desks: Huang’s posture is being read as the latest reinforcement for keeping leadership exposure (Mag 7, semis) on through the FOMC communications window and into Friday’s NFP print.

Atlanta Fed GDPNow — Q2 nowcast update UPDATE TODAY

GDPNow Q2 2026 nowcast holds 3.8% SAAR as of May 28; next update lands today — June 1 ISM Manufacturing print could move it

The Atlanta Fed’s GDPNow model is pegging Q2 2026 real GDP growth at 3.8% seasonally-adjusted annualized as of May 28 — well above the long-run potential growth estimate. The next scheduled update is today, June 1, meaning the pre-market read may see a meaningful revision driven by ISM Manufacturing and any other data prints. Heading into the second half of Q2, the model is pointing to growth running hotter than Fed estimates of trend, which complicates the policy debate amid the Iran/Middle East conflict-driven energy shock.

BEA Personal Income & Outlays (April)

BEA April release: headline PCE prices +3.8% YoY, core PCE +3.3% YoY, saving rate compressed to 2.6%

The BEA reported April personal income essentially flat (less than −$0.1B), with disposable personal income −0.1% and PCE +0.5% — driven by a $67.2B rise in services and $44.0B in goods. The PCE price index rose 0.4% month-over-month and 3.8% year-over-year; core PCE (ex food and energy) rose 0.2% MoM and 3.3% YoY. The saving rate compressed to 2.6% in April, signaling households are running down savings as energy-driven price pressures eat into real income. The next release is June 25 for May data.

NY Fed Liberty Street Economics — regional K-shaped spending

Liberty Street: K-shaped gas-spending gap widens in the NY Fed Second District in response to the recent gas price shock

NY Fed researchers Chakrabarti, Pham, Pierce, and Pinkovskiy used inaugural regional consumer-spending indicators to confirm that the K-shaped retail and gasoline spending patterns visible nationally are even more pronounced in the Second District (NY/NJ region). The gas price shock from the Iran/Middle East conflict has hit lower-income consumers asymmetrically — they cannot reduce spending on the unavoidable input (fuel) and so reduce discretionary spending elsewhere, while higher-income spend continues. The piece reinforces the bifurcation that pervades Fed staff thinking right now: aggregate growth solid, distributional pressure intensifying. The implication for traders is that aggregate demand may hold in the headline data while cyclical consumer-discretionary stocks face a tougher tape than the GDPNow figure implies.

NY Fed Liberty Street Economics — Food Insecurity & Consumer Pessimism

Liberty Street: food insecurity has risen sharply, concentrated in lower-income households and households with young children

Kosar, Mehta and van der Klaauw use newly collected Survey of Consumer Expectations data to document “a remarkable increase in food insecurity” among lower-educated, lower-income households and households with young children. Pessimism rose contemporaneously in those same groups along with a sharp decline in job-finding expectations. The bifurcated U.S. economy narrative — high-income households doing fine, large segments under severe financial strain — is now backed by SCE data showing the pessimism is concentrated where it would actually move consumer behavior. This is the demand-side risk the Fed has been calling “downside skew to the labor market.”

BLS June 2026 Release Calendar

BLS: heavy data week ahead — JOLTS Tuesday, Productivity revision Thursday, May NFP Friday 8:30 AM ET; CPI June 10, PPI June 11

The BLS June 2026 calendar shows a packed first week: JOLTS for April releases Tuesday June 2 at 10:00 AM, Productivity & Costs (revised) for Q1 hits Thursday June 4 at 8:30 AM, and the May Employment Situation report — the marquee print — fires Friday June 5 at 8:30 AM. CPI for May follows June 10 (8:30 AM), PPI for May June 11. Given the energy-driven inflation worry highlighted by Waller, Bowman and Jefferson, every print this week is potentially market-moving; NFP is the must-see, with the FOMC holding rates in part because the labor market hasn’t broken and deterioration could re-open the cut conversation Waller closed.

NY Fed Liberty Street Economics — AI supply chain

Liberty Street: AI investment boom faces supply-chain vulnerabilities from Middle East conflict via Asian supply chains

Clark, Dawson, and Turney at the NY Fed identify the Iran/Middle East war as “the third global supply shock in six years” after COVID 2020 and Russia/Ukraine 2022. The paper highlights the Asian-supply-chain conduit — southeast Asian middle-income countries that are key suppliers for AI infrastructure buildout components are also heavily dependent on Middle East energy imports. This means the AI capex stack that is driving GDPNow’s 3.8% reading is exposed to the same energy shock that is driving headline inflation. The “transitory shock” framing requires this exposure to not bite — a wildcard the briefing flags below.

Governor Jerome Powell — JFK Profile in Courage Award acceptance SATURDAY

Powell — now Governor, no longer Chair — delivers a pointed defense of Fed independence; policy-driven removals “would cause the public to lose faith”

In his acceptance of the JFK Profile in Courage Award at the JFK Library in Boston Saturday night, Governor Powell — note: now Governor, not Chair, with Warsh listed as “Chairman Warsh” on the Fed’s own speeches filter — delivered a highly political defense of central-bank independence aimed unmistakably at the current administration. He stated that if any administration finds a way to remove Fed officials over policy differences, then future administrations will do so as well, and the public would lose faith that the central bank will make decisions based only on what’s best for all Americans. He framed Fed governors’ legal protection against removal as a key insulation that “has served the public well.” For markets, the speech signals that political pressure around the Warsh-led Fed remains acute and that institutional credibility risk has not been priced out — directly relevant given Waller’s parallel warning about unanchoring inflation expectations.

Vice Chair for Supervision Michelle Bowman — Reykjavík Economic Conference

Bowman: hold rates; look through the transitory energy shock for now — but “the longer the conflict persists” the more she will weigh inflation

VC for Supervision Michelle Bowman laid out her decision framework at the Reykjavík Economic Conference. Her current read: “Progress on lowering inflation appears to have stalled,” with headline PCE 3.8% YoY in April and core PCE 3.3% (up notably since September). She supports the current “moderately restrictive policy stance” to allow inflation to resume its downward trend “once the effects of tariffs and oil prices dissipate.” Critically: “The more persistent higher oil prices are — or if we start to see broader effects of higher energy prices on PCE inflation — the more likely I will consider shifting my approach.” She notes labor-market signs of fragility despite the unemployment rate holding at 4.3%, with long-term-unemployed share around 25%. She backs looking through the Iran shock for now, but explicitly warns the patience has a clock.

Vice Chair Philip Jefferson — BOJ Tokyo

Jefferson: labor-market risks “skewed to the downside,” inflation risks “tilted to the upside”

Vice Chair Jefferson framed the global landscape from Tokyo around three developments: the Middle East energy shock, AI’s productivity potential, and disrupted trade flows. On the U.S.: recent growth “solid” but expected to slow this year as households face high energy costs. The labor market is “broadly stable” but he sees risks “somewhat skewed to the downside.” Disinflation stalled because of tariffs, then moved notably higher because of energy costs. He expects inflation to decline later this year as tariff and energy effects wane, but views risks as “tilted to the upside.” The FOMC kept rates at 3.5%–3.75% at the late-April meeting and he “has not prejudged” the next meeting. The signal: the FOMC is on hold and the energy shock is the swing variable.

Governor Christopher Waller — Frankfurt School “Policy Risks Have Changed”

Waller: pause rate cuts, remove easing-bias language; not ruling out hikes if Iran-driven inflation persists

Governor Waller delivered the most consequential Fed speech of the past two weeks at the Frankfurt School. He supported the April pause in rate cuts because of the Middle East conflict’s energy shock, said he “would support removing the easing-bias language” from the FOMC statement to make clear “a rate cut is no more likely in the future than a rate increase,” and explicitly noted he “can no longer rule out rate hikes further down the road if inflation does not abate soon.” He cited April CPI +0.6% MoM, energy +3.8%, grocery +0.7%, apparel +0.6%, services ex-energy +0.5%; PCE around 3.8% YoY, core PCE 3.3% (highest in 2.5 years). He thinks “markets are underpricing the risk of prolonged high energy prices.” The Bayesian-updating framework warns transitory shocks can stack into unanchored expectations.

SF Fed Economic Letter — Abdelrahman / Foerster

SF Fed: 57% probability the U.S. is in a high-productivity regime; labor productivity 8pp above 2022 levels, but TFP flat since 2024

Hamza Abdelrahman and Andrew Foerster at the SF Fed examine whether the U.S. is entering a high-productivity growth period analogous to the late-1990s surge. Labor productivity has gained substantially over the past three years, helping the economy expand steadily despite near-zero employment growth, and AI-related business investment has surged. However, two well-known productivity measures don’t yet provide strong evidence of a regime shift — recent patterns “resemble the mixed signals during the early stages of the 1990s productivity surge before a sustained high-growth period materialized,” giving reason for “cautious optimism.” A regime-switching model using labor productivity assigns a 57% probability to the high-growth regime; TFP has been flat since 2024.