The World Changed in 10 days: An Oil Unwind and a Hawkish Fed
In just 10 days, the world changed: a sharp oil unwind collided with a newly hawkish Federal Reserve, flipping two pillars that had been driving markets for months.
After the Iran conflict pushed oil as high as roughly $126 per barrel in late March, prices have since fallen more than 40% in about 60 days, with the steepest leg coming in recent weeks. For everyday Americans, that has helped pull average national gasoline prices down from a peak above $4.50 per gallon to below $4.00 – welcome relief for consumers worried that energy costs could curb spending.
The bigger shift, though, came at the mid-June policy meeting, the first chaired by the new Fed leader. Long seen as leaning toward easier policy, the debut instead marked a hawkish break from late in the predecessor’s tenure. Investors had already largely priced out rate cuts ahead of the meeting, reacting to commodity-driven inflation and firmer economic data.
In theory, inflation running above the central bank’s 2% target leaves little reason to cut. But in the late innings of the prior chair’s tenure, perceived labor-market weakness opened the door to “insurance cuts,” helping power risk assets and pushing investors toward real assets viewed as stores of value. Gold’s surge from about $3,500 per troy ounce last September to just under $5,500 in January captured that backdrop.
Our new Fed leader’s first meeting broke the mold. The policy statement was sharply shortened, forward guidance was eliminated, and language interpreted as an easing bias was removed. Forecasts revised inflation higher and leaned hawkish. The vote was framed as “unambiguous and unanimous” on delivering price stability – a stark contrast with a communication-heavy, guidance-dependent approach. Warsh even noted forecasts were coming in “with pencils…with big erasers,” underscoring how fast conditions are changing.
That posture is already showing up in markets: market-based inflation expectations have fallen sharply, even below pre-conflict levels. In other words, a renewed willingness to hike – or simply the absence of an easing bias – can give bond investors greater conviction that long-run inflation will be contained, even with the possibility of renewed energy shocks.
But what if higher energy prices aren’t the problem anymore? The last two inflation reports were heavily influenced by the energy shock, and a sizeable June drop in oil has yet to fully filter through. Meanwhile, bond yields have been moving increasingly in step with oil, reflecting the simple logic that energy feeds inflation, which feeds policy expectations. Now, with oil lower and the Fed interpreted as hawkish, the labor market and broader growth path retake center stage: one major overhang is fading, but the bar to hike still looks high as energy pressures abate.
Rick Barragan is the Managing Director,
Los Angeles Market Manager, for
J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
Source: “The world changed in 10 days: An oil unwind and a hawkish Fed,” Kriti Gupta, global investment strategist, July 1, 2026
