by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our assessment of the latest Fed meeting minutes and their implications for incoming Chair Kevin Warsh. We then examine the political backlash stemming from the energy crisis and how Europe is attempting to manage it. We also briefly touch on Nvidia’s earnings, the US indictment of former Cuban president Raúl Castro, and early signs that the EU is building out its security industry. As always, we provide a comprehensive roundup of the latest international and domestic economic indicators.

Hawkish Fed: The April 28-29 FOMC meeting minutes suggest policymakers were more open to the possibility of additional rate hikes than the official statement implied. Participants also expressed ongoing concern about the economic and inflationary risks associated with the conflict in Iran. At the same time, some members favored preserving optionality for future rate cuts, noting that the labor market has yet to demonstrate clear, sustained strength. This divergence will likely complicate the efforts of incoming Fed Chair Kevin Warsh to develop a consensus on policy.

• Overall, the meeting minutes seemed to suggest that hawks may be in the driver’s seat. While the recent Fed announcement showed that three officials dissented in favor of dropping an easing bias in the statement, the minutes revealed that a majority of members believed that “policy firming” would be appropriate if inflation were to persistently run above the Fed’s 2% target.
• However, there did seem to be at least some openness for a rate cut. The minutes revealed that one member, outgoing Fed Governor Stephen Miran (the only dovish dissenter) had argued for a rate cut to help address fragility in the labor market. While he stood alone in that specific effort, other members expressed support for possible rate cuts in the future if inflation were to return to its downward trajectory.
• Given the ongoing concerns about the Middle East, Warsh will have limited time to make the case for easing policy. Before his confirmation, he argued that the Fed should incorporate AI‑driven productivity gains into its framework and was explicit about his openness to lower rates. But his claim that “inflation is a choice” and criticism that the Fed has drifted from its price‑stability mandate could complicate that effort, given lingering concerns about his independence from the White House.
• The Fed is not on a preset path and will likely seek clearer confirmation before moving rates in either direction. While some FOMC members may be open to further tightening, we think the committee will ultimately favor keeping rates steady, particularly given the political backdrop. If inflation stays elevated, longer‑duration bonds could see continued volatility, though we still expect 10‑year Treasury yields to trade broadly range‑bound around the mid to low 4% area.

Hormuz Unrest: The energy shock stemming from the standoff in the Strait of Hormuz is fueling rising political tensions across a number of countries. Governments have tried to calm nerves over potential shortages of energy and, in some cases food, to contain public anxiety. While political pushback in most developed economies remains limited for now, several emerging markets are already showing how severe the fallout could become if conditions do not improve.

• More governments are weighing measures such as stockpiling and price controls to avert a potential food crisis. Recent reports indicate that the EU is exploring the stockpiling of fertilizer to safeguard future harvests and reduce the risk of shortages. Likewise, the UK has floated temporary caps on select staple foods to help ease the pressure from the increasing costs of living on households.
• Rising political risks also appear to be pushing the EU, in particular, to soften its stance toward both the US and Russia. In an effort to avoid an escalation in trade tensions that could further weaken its economic outlook, EU leaders have finally agreed to put the US trade deal to a vote next month. At the same time, Brussels is seeking a more prominent role in talks with Moscow, positioning the EU to pursue a resolution to the conflict even in the absence of direct US involvement.
• Although risks remain elevated, there are signs of a broader push to finally resolve the Strait of Hormuz standoff. While US-Iran negotiations are ongoing, recent developments suggest both sides may be edging closer to an agreement. At the same time, several Middle Eastern producers are investing in infrastructure to reduce their reliance on the strait. For example, the UAE has indicated that a new pipeline project designed to roughly double its export capacity is already about halfway complete.
• We see a risk that the Strait of Hormuz crisis could spill over into broader global instability and potentially trigger a new migration wave, though this is not our base case. We remain cautiously optimistic that a deal can be reached in the coming weeks to reopen the strait and ease pressure on energy and commodity markets. In that scenario, we would expect European equities to be among the main beneficiaries, given their sensitivity to energy prices and vulnerabilities to rising geopolitical risks.

Nvidia Earnings: The world’s largest chipmaker and key bellwether for the AI boom beat expectations in the first quarter. The company reported revenue of $91 billion, ahead of the $87 billion consensus estimate. On the earnings call, CEO Jensen Huang highlighted that the firm is broadening its revenue base beyond data centers to areas such as robotics and autonomous vehicles, underscoring how AI demand is expanding beyond core infrastructure.

Castro Indictment: The US has indicted former Cuban President Raúl Castro over the 1996 incident in which two civilian planes were shot down, marking a significant escalation in Washington’s approach to Havana. In our view, this move fits into a broader effort to pressure authoritarian leaders in the region and, more broadly, to reassert a modern version of the Monroe Doctrine — what some have dubbed the “Donroe Doctrine” — as the US seeks to counter rival powers in its hemisphere.

European Defense: In a further sign of rising European defense outlays, Germany has acquired a 40% stake in tank maker KNDS. The move should help strengthen Europe’s domestic armored‑vehicle industry while reducing the region’s reliance on US defense capabilities. We continue to see European defense as a key structural growth area as governments assume a larger share of their own security burden.

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