By Molly Schwartz, cross-asset macro strategist at Rabobank

Earlier in the week, on Monday, Axios reported that “Iran threatened to abandon the negotiations with the US over Israel’s actions in Lebanon,” with inside sources suggesting that Trump called Netanyahu “crazy.” While Trump did not comment on the exact language, he did confirm the use of “expletives” in an interview with the New York Post on Wednesday that he and Netanyahu haven’t exactly been seeing eye-to-eye: “I was a little perturbed at his constantly fighting with Lebanon. You know, at some point, I said, ‘Bibi, we gotta stop this. You gotta stop it.’” Since then, the US has announced a ceasefire between Israel and Lebanon, “contingent on a complete cessation of fire by Hezbollah and evacuation of operatives from Lebanese territory south of the Litani River.” However, if one looks at the state of the current ceasefire between the US and Iran, one may be tempted to manage their expectations with regards to how long the ceasefire will last, and if this will set a foundation for meaningful negotiations between Washington and Tehran. More importantly, Hezbollah, who operates independently from (and often against the interests of) the Lebanese Government, has not yet indicated that they agree to the terms of the ceasefire. After the announcement, brent crude oil 1-month futures dropped a little more than $1 to $96.7/bbl.

According to Bloomberg, the International Atomic Energy Agency (IAEA) has published a “restricted” document which reveals that the nuclear risk posed by Iran is now higher today than it was before the war began. Specifically, prior to the war, the IAEA was allowed to inspect Iranian enriched uranium, but such inspections have since largely halted. However, it should be noted that the IAEA was always only inspected where the IRGC told them they were allowed to, and many suspected that nuclear proliferation was happening behind the scenes, in facilities that were not accessible to the IAEA.

Tariff headlines are once again entering the news circuit. Trump has lowered the benchmark of US-content necessary for a copper product to be considered “US-made” and therefore exempt from the 50% Section 232 tariffs. However, there was also bad news for some US trading partners, as the USTR has announced proposed tariffs of 10-12.5% under Section 301. There is also the proposal of 25% tariffs on Brazil, which President Lula responded to by saying “he could not accept the treatment” his country had received.

Kevin Warsh appointed Paul Winfree and Daniel Heil to support him as Fed Chair. Winfree was working at the Heritage Foundation when Project 2025 was published in 2022, and contributed the chapter dedicated to the Federal Reserve. While Warsh has criticized the Fed himself, citing an article he wrote, published in the Wall Street Journal in November of 2025 called “The Federal Reserve’s Broken Leadership,” Warsh’s criticism is aimed at the how the Fed was being run. Some of Winfree’s comments echo those of Warsh (or perhaps Warsh echoed Winfree, given the chronology), such as critiques of mission creep, like how “political pressure has led the Federal Reserve to use its power to regulate banks as a way to promote politically favorable initiatives including those aligned with ESG objectives.” However, the bulk of Winfree’s manifesto takes aim at the Fed as an institution, arguing that it “lacks both operational effectiveness and political independence.” Winfree offers several recommendations, including the following:

• Eliminate the dual mandate: Winfree argues that expansive monetary policy (the labor mandate) may “inadvertently contribute to recessions” as it provides “easy money” which “causes the clustering of failures that can lead to a recession.” He advocates instead of a focus on dollar protection and managing low and stable inflation.
• Eliminate the Federal Reserve’s lender-of-last-resort function: Winfree believes that the lender of last resort function acts as a conduit for moral hazard. This is an especially interesting point as it lies in partial opposition to a strategy laid out by Stephen Miran (and friends) in his article, “A User’s Guide to Reducing the Federal Reserve’s Balance Sheet.” While their respective arguments do not lie in total opposition, Miran’s argument is that there should be more communication to lessen the stigma often associated with using the Fed as a lender-of-last-resort, as it “makes banks reluctant to access the [discount] window even when genuinely needed, leading them to hold larger precautionary reserve buffers than rely on the discount window as intended” and “has played a meaningful role in driving up demand for reserves.” See more in Winfree, next recommendation below:
• Wind down the Federal Reserve’s balance sheet: Winfree, Miran, and Kevin Warsh are aligned on the goal of shrinking the Fed’s balance sheet. However, the methods for doing so are clearly controversial (see above). Miran’s report highlights many (many) strategies for reducing the balance sheet, so further discussion on one component is likely not a dealbreaker.

However, the aforementioned recommendations are overshadowed by his “monetary rule reform options,” the first of which, is free banking. Straight out of the Austrian School, Winfree advocates for the functional abolition of the Federal Reserve altogether, claiming that “potential downsides of free banking stem from its greatest benefit: It has massive political hurdles to clear,” saying that “transitioning to free banking would require political authorities, including Congress and the President, to coordinate on multiple reforms simultaneously.” Recall that this was published in 2022—before the GOP got Trump in the White House, Bessent in the Treasury, and a majority in both Congressional Houses. Naming a self-proclaimed free banker, who supports the dissolution of the Fed, as an advisor to the Chair of the Fed sets the stage for a potential dramatic restructuring of how monetary policy is conducted in the US. Winfree also argues in favor of either restoring the gold standard, or enforcing Milton Friedman’s “K-percent rule,” where the Federal Reserve creates money at a fixed rate.

As discussed by Rabobank’s Jane Foley in yesterday’s FX Strategy report, USD/JPY pulled back sharply as PM Takaichi spoke, hinting at potentially another round of MoF intervention. JPY dipped 0.37% to yesterday’s low, but that move retraced through to the NY close, ending the day 0.09% higher, and breaking the 160 level at 160.08. Meanwhile, Bank of Japan Governor Ueda suggested that an interest rate hike at the June 16 meeting is likely, though not officially set in stone, and the Japanese OIS curve is pricing in close to 90% of a hike.