by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our views on the new Federal Reserve chair. We then examine recent signs that the US is seeking greater influence in Latin America. After that, we briefly cover a potential challenger to UK Prime Minister Keir Starmer, provide an update on the US-China summit, and highlight an AI robot now capable of performing blue‑collar work. As always, we include an overview of the latest international and domestic economic data.

New Fed Chair: Kevin Warsh has officially taken the helm as Fed chair, stepping into a role that is likely to become more contentious as he works to define his legacy. He inherits a central bank grappling with a renewed bout of inflation, the rapid emergence of AI, and a president who has made clear his desire for greater influence over monetary policy. How Warsh navigates these issues will be critical, not just for the Fed’s credibility, but for bond markets that have already fallen out of favor amid growing doubts about the central bank’s commitment to price stability.

• The new chair takes over a Fed that has grown increasingly hawkish in recent months. While Warsh had previously signaled openness to a potential rate cut, the latest FOMC meeting revealed three dissents in favor of language that deliberately avoided any suggestion of a pivot toward easing, particularly in light of the recent uptick in inflation. This shift has been further cemented by the departure of Fed Governor Stephen Miran, the most dovish member, which has tilted the Committee’s balance even more firmly in a hawkish direction.
• Warsh is also assuming leadership at a moment of significant change and uncertainty, complicating the policy outlook. Although the war in Iran has pushed headline inflation to its highest level since 2022, many observers still view this shock as potentially temporary. At the same time, optimism around AI’s ability to lift productivity persists, even as the associated infrastructure build-out contributes to higher prices in energy as well as other parts of the economy.
• While Warsh may find it difficult to build consensus, he does appear to be prepared for the Fed to have tougher, more candid internal debates. Unlike his predecessor, he does not see it as the FOMC’s job to keep markets continuously updated on every nuance of its thinking, warning that excessive communication can backfire when members disagree and send mixed signals. Instead, he is expected to keep more of the discussion behind closed doors and communicate externally on a more selective, need‑to‑know basis.
• Warsh will need to establish his credibility quickly if he wants to earn the bond market’s trust. His first meeting on June 15-16 will be an important early test, as investors will look for a clear framework for how he intends to address the recent uptick in inflation. If he is successful, he should be able to reduce some of the volatility that we have seen in bond markets.

“Donroe Doctrine”: While attention has been fixed on the Middle East, the US continues to deepen its engagement in Latin America. The CIA director has reportedly traveled to Cuba to signal that Havana will need to undertake significant changes if it wants sustained US support. At the same time, President Trump has floated the idea of Venezuela becoming the 51^st US state, underscoring a more assertive regional posture. This renewed focus on the Americas highlights Washington’s efforts to curb China’s influence within the US’s own hemisphere.

• On Thursday, CIA Director John Ratcliffe traveled to Havana for talks with Cuban leaders focused on relief efforts. Cuba recently announced that it now has sufficient diesel and fuel oil supplies for power generation following the US blockade. During his visit, Ratcliffe indicated that Washington would be open to offering economic and security guarantees if Cuba undertakes significant reforms, including changes to its economic system.
• Further south, President Trump has sparked confusion by suggesting that he would like Venezuela to become the next US state. Earlier this week, he posted a map depicting Venezuela covered in American flags, fueling speculation that Washington intends to deepen its ties with Caracas. Although the US Constitution requires both congressional approval and the consent of the country itself for statehood, this rhetoric signals an ambition for the US to exert greater influence over the region.
• The push to draw two China‑aligned regional players more firmly into the US orbit reflects Washington’s broader effort to reassert influence in its own hemisphere. This ambition likely extends well beyond Venezuela and Cuba, encompassing Latin America. In our view, the US’s backing of Argentine President Javier Milei and prior White House support for former Brazilian President Jair Bolsonaro are examples of Washington’s interest in shaping political and economic outcomes across the region.
• US efforts to exert greater influence over Latin America are likely to benefit capital markets in the region. We believe deeper economic and security ties could pave the way for increased US investment while also helping the US secure local resources. As a result, we see Latin America as a potentially overlooked investment opportunity.

Starmer Challenge: Andy Burnham has emerged as a possible challenger to Keir Starmer’s leadership of the Labour Party. Currently serving as the mayor of Greater Manchester, Burnham has signaled plans to seek a parliamentary seat in an upcoming Manchester by-election as a springboard for a future leadership bid. If successful, he could ultimately force a leadership vote that might position him to become prime minister. Repeated shifts in party leadership have heightened political risk, contributing to upward pressure on regional bond yields.

US-China Talks: There was no grand bargain after the two-day meeting between the US and China. However, Beijing said both sides reached an important consensus on a new “strategic relationship.” While the talks did not produce any formal agreements, US officials indicated they discussed creating a Board of Investment to coordinate projects in non-sensitive sectors, as well as potential Chinese purchases of Boeing aircraft and US agricultural products. The meeting likely paves the way for future talks.

AI Workers: While most of the focus has been on AI’s replacement of white‑collar workers, there are growing signs that automation is moving into blue‑collar roles as well. A new AI‑enabled robot can reportedly change tires in about half the time of a human worker, helping to address labor shortages in this area. Developments like this suggest that the potential for job displacement may be broader and more pervasive than is often acknowledged.

View PDF