US-Iran Peace Agreement: What Was Agreed
The US-Iran ceasefire memorandum of understanding has been confirmed and will be formally signed in Switzerland on Friday, June 19. The terms of the agreement are notably favorable to Iran. The Iranian nuclear issue has been removed from external negotiation scope. Iran's missile program and its support for regional resistance fronts were excluded from the talks entirely. On the financial side, approximately $120 billion of previously frozen dollar assets will be unfrozen, sanctions on Iranian oil exports have been lifted by the US and its European allies, a $300 billion reconstruction investment commitment has been made, and Iran may introduce transit fees for passage through the Strait of Hormuz. US pre-war objectives around regime change were not achieved. Despite a clear military advantage, the US faced a different calculus around domestic political tolerance for sustained conflict costs, particularly heading into election season.
Fed Watch: Walsh's First Major Speech on June 18
Federal Reserve Chairman Kevin Walsh will deliver his first major policy speech on Thursday, June 18 at 2:30 AM, followed by a press conference. The interest rate decision itself carries no surprise. Markets have reached a firm consensus that rates will remain unchanged at this meeting. All attention is therefore concentrated on Walsh's initial policy statement and the signals it sends about the Fed's future direction.
Understanding Walsh's Policy Philosophy
Walsh's framework represents a meaningful departure from recent Fed communication norms. His core policy proposal centers on a simultaneous rate cut and balance sheet reduction strategy, which at first glance appears contradictory but reflects a clear internal logic.
Rate cuts address the price of money, acting on the right side of the monetary equation as a short-term tool to support capital market activity and align with the current political environment under Trump.
Balance sheet reduction addresses the quantity of money, acting as the left-side preventive tool and Walsh's preferred long-term instrument for achieving price stability.
Walsh's singular priority is price stability. Maximum employment, while part of the Fed's dual mandate, is not treated as an equal objective under his framework. His philosophy aligns more closely with the Greenspan-era conception of the Fed as a macroeconomic gatekeeper rather than a proactive market participant.
Walsh has been openly critical of several aspects of recent Fed practice. He views the dot matrix forward guidance framework as counterproductive, arguing it amounts to premature commitment and creates rigidity when economic conditions shift. He has also pushed back against what he sees as the politicization of the Fed through its engagement with topics such as climate risk assessment, social equity, and the Community Reinvestment Act. He favors a Fed that operates with clearly defined monetary boundaries, strips away non-core functions, and allows genuine internal debate rather than presenting a unified public front.
The Balance Sheet Context
To understand why balance sheet reduction is central to Walsh's agenda, the scale of the current situation is relevant. Following four rounds of quantitative easing since 2008, US M2 money supply has reached $22.8 trillion and M1 has reached $20 trillion. US national debt has exceeded $39 trillion, with annual interest payments of $1.1 trillion now surpassing the defense budget and ranking as the third largest category of federal expenditure after Social Security at approximately $1.46 trillion and healthcare at approximately $1.05 trillion.
Quantitative easing, which expanded the Fed's balance sheet through the purchase of Treasuries and mortgage-backed securities, is not a traditional monetary policy tool. It was introduced by Chairman Bernanke in November 2008 in response to the global financial crisis and deployed in three subsequent rounds through 2014, then again from 2020 to 2022 in response to the COVID-19 pandemic. Each round expanded base money and, through the money multiplier, amplified broader M2 growth significantly.
Bottom Line
Walsh's framework is internally consistent. Rate cuts provide short-term political alignment and market support. Balance sheet reduction is the structural, long-term inflation fighting mechanism. The two tools operate on different dimensions and are not in conflict. For markets, the key question on Thursday is not whether rates move but how explicitly Walsh signals the pace and sequencing of balance sheet reduction, and whether he provides any forward guidance despite his stated opposition to that approach.
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