Market Review 22nd June 2026

Everything you need to know, Simplified!

Change at the top of UK politics and a reset at the US Federal Reserve: How will markets be affected?

Summary

• In the UK, all eyes are on 10 Downing Street after Keir Starmer’s resignation as Prime Minister this morning

• Elsewhere… central banks US Federal Reserve (Fed) and the Bank of England (BoE) held rates; the Bank of Japan (BoJ) hiked the base rate to 1.0% (highest since 1995), with markets largely steady

• Geopolitics remain fragile but oil price eased (Brent crude around US$80), reducing near-term inflation pressure

• Fed Chair Kevin Warsh stamped authority early: stripped back guidance, simplified communication and re‑anchored the Fed to price stability (aiming to keep inflation low ad predictable)

• Policy shift is philosophical and pragmatic rather than outright hawkish (keeping higher interest rates to control inflation): more sceptical of forecasts, less reliance on forward guidance and a clearer institutional reset underway

• Back to basics monetary policy: Fed liquidity policy is likely to be used more cautiously

• BoE remains in easy ‘wait and see’ mode amid weak growth and political noise; focus this week shifts to US PCE (measure of inflation), expected to reinforce a firmer Fed stance and political developments in the UK

• UK Prime Minister Keir Stamer’s resignation is adding uncertainty to the domestic outlook and vulnerability to the gilt market (UK government bonds) heading into this week.

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Market Review

Change at the top

Keir Starmer has announced his resignation this morning as Prime Minister and leader of The Labour Party. Last week’s byelection win for Andy Burnham suggested that the markets had already priced in the resignation of Starmer with ‘The King of The North’ expected to enter number 10 unopposed.

Interest rate week: markets steady as BoE and Fed hold

The focus last week was on three central bank meetings, with the Fed and the BoE both holding rates steady while the BoJ hiked to 1.0%, the highest level since 1995. 

Markets were steady with little change across equity and bond indices. The Iran-US pact remains intact, though on shaky ground as military action between Israel and Hezbollah continued throughout the week. The US has pressured Israel toward a ceasefire with Hezbollah, and oil prices continued to ease, with Brent closing near US$80 a barrel - the lowest since the start of the conflict.

Warsh: a price stability pragmatist

As we anticipated, new Fed Chair Kevin Warsh has washed away any remaining fears over his independence, asserting himself decisively at his first Federal Open Market Committee meeting. Not only did the committee remove the language hinting at future rate cuts, but it also stripped the policy statement down almost entirely. The statement fell from around 300 words to 130, narrowly outlining present economic conditions - solid growth and energy-driven inflation - while forgoing forward guidance altogether. The stripped-down document delivered a blunt commitment to inflation control: “this committee will deliver price stability”.

Chair Warsh is not, however, ‘a hawk in dove's clothing’ as some are suggesting. His actions are entirely consistent with his long track record as a price stability pragmatist with a strong institutional reform agenda. Warsh brings genuine introspection to the Fed, announcing the appointment of five task forces covering the broad conduct of monetary policy: communications, balance sheet management, data sources, productivity and jobs in an era of transformation and the Fed's inflation framework.

On balance sheet management, Warsh resigned from the Fed in 2011 in disagreement with the Fed's use of quantitative easing (the bank buying bonds to help the economy), which he viewed as excessive and an overreach of its mandate. In this regard, the so-called ‘Fed put’ - the central bank's willingness to backstop the economy through large-scale liquidity provision - may be softer under his leadership. In Warsh's view, such intervention creates socialism for investors and capitalism for everyone else. He wants to reduce the size and influence of the Fed's balance sheet, which has ballooned since the Global Financial Crisis. While his earlier criticisms of excessive liquidity policy were well-founded, meaningfully reversing course in practice may prove impossible and the benefit of doing so is far from clear. Like reversing over something you have already hit, it will not undo the damage. At the very least, expect a more restrained use of liquidity policy and perhaps a reduced willingness to backstop the financial system to the same extent as recent predecessors in a crisis. Warsh is a ‘back to basics’ policymaker.

The removal of forward guidance is equally consistent with Warsh's long-held view that the Fed overcommunicates, providing markets with too detailed a roadmap of its intentions - a rod for its own back when circumstances change. It also risks a circular feedback loop in which markets read the Fed's guidance while the Fed interprets market pricing. Warsh notably abstained from submitting his own dot to the dot plot - the quarterly chart showing FOMC participants' interest rate expectations - and suggested the projections should be read "in pencil" given the fluidity of the current backdrop. The dramatic shift in the dot plot since March validates his point: the median projection for the federal funds rate at end-2026 has risen from 3.4% to 3.75%, while the 2027 projection has moved from 3.125% to 3.625%.

The Fed's review of data sources and methodology could also deliver improvements. Official inflation and labour market data have drawn criticism for their accuracy and timeliness, with large revisions and methodological inconsistencies wrongfooting both market participants and policymakers. When government releases lag reality by 30 to 60 days it can lead to “long and variable lags in the conduct of monetary policy”.

What, then, should we expect from the Fed going forward? The June dot plot signals a significant hawkish shift, and Warsh has acknowledged both the resilience of the US economy and the persistence of above-target inflation. His comments reflect a genuine nuance; the current policy rate is unevenly restrictive, with the burden of high interest rates falling disproportionately on certain parts of the economy and feeding a K-shaped dynamic. Warsh also sees disinflation as a potential product of technological innovation - should AI-driven productivity gains reduce inflationary pressure, the Warsh Fed would respond by cutting rates. The direction of travel under Warsh is therefore neither hawkish or dovish, but it is anchored to price stability, sceptical of its own forecasts and attentive to it asymmetric impact on the economy. How this pragmatic framework navigates an increasingly bifurcated economic landscape will be one of the defining questions of his tenure.

BoE easy ‘wait and see’

There is far less to say on the BoE who continue in ‘wait and see’ mode, an easy decision given the progress of peace negotiations in the Middle East and the weak economic backdrop. The UK's sensitive political position, with the Prime Minister now resigned, adds further uncertainty to the domestic outlook and vulnerability to the gilt market heading into this week. 

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The week ahead

US PCE inflation

PCE and core PCE inflation is expected to rise in May, affirming the Fed’s more hawkish stance. Bloomberg estimate the PCE price index increased 0.48% in May, raising the annual inflation reading to 4.1% from 3.8%. Core PCE inflation is expected to come in hot too at 0.35% for the month, boosting the core reading to 3.4%. Airfares, healthcare costs and portfolio management fees account for much of the monthly rise in core inflation. 

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