Things have changed quite a bit since the FOMC meeting in April — except perhaps that US junk bond yields are still at record lows. However, the Federal Reserve may not react too strongly, and its statement may not change in any way, turning the focus to any hawkish hints surrounding the reduction schedule. Although this may spur a stronger dollar, 10-year US Treasury bonds are around 1.50%, showing confidence in the Federal Reserve's framework; this framework is something Federal Reserve Chairman Powell will want to keep.

Of course, the policy shift will not be easy. Given that the number of non-farm workers employed increased by less than 600,000 in April and May, the threshold for significant progress may not have been reached. Although the threshold for the 2023 bitmap to move to interest rate hikes is low — because 7 of the 18 FOMC members already have this trend and members are open to discussing easing and reduction, if the inflation outlook remains unchanged, the median tightening could raise credibility issues.

Falling commodity prices further limited the release of signals of immediate stimulus cuts, and the “inflation is only temporary” narrative prevailed. The Fed's favored inflation expectations have fallen by more than 20 basis points since mid-May, while 72% of fund managers believe in the interim.

Against this backdrop, the performance of oil prices remains impressive, with the price of Brent crude oil approaching 75 US dollars per barrel. This should boost European energy stocks and help the Stoxx 600 index continue its record for the longest continuous increase since 1999. Unless the Federal Reserve misses the big bookers at the stock market party due to an unexpected act.

This article is an excerpt from the Bloomberg Markets Live review. It only represents the author's personal opinion and does not constitute investment advice.