The Wheel Changes Hands
With oil down 16 percent and gold circling 4,500 dollars, the most important event of the week was not a price. It was the fact that the Federal Reserve got a new driver. The question is no longer “when do they cut,” but “who controls the print button now.”
On May 22, Kevin Warsh officially took over the wheel of the Federal Reserve. The Senate confirmed him 54 to 45, and Jerome Powell stayed on the board, the first time in 75 years a former chair did not walk out the door. It looks technical, but underneath sits the deepest question about the hegemon’s tools.
Warsh is known as an inflation hawk. The president who put him forward loudly wants cheaper money. That same Warsh is quietly extending a new reserve management purchases (RMP) program, which Arthur Hayes calls stealth money printing. A hawk in rhetoric, a dove on the balance sheet.
That is why this is not an event but a mechanism. The hegemon has one tool more valuable than aircraft carriers, the ability to print the reserve currency without consequence. When the wheel of that printing passes to a person whose mandate is political in origin, the market stops asking about the rate path. It asks whether the central bank is still independent.
In the hierarchy: L2 (hegemon’s tools) under stress, feeding L3 (fiscal dominance), visible in L4 (gold, the long end of bonds, BTC).
A hawk who prints. If the guardian of the money quietly does what he publicly disowns, why trust the rhetoric. The cycle always ends not with a decision, but with printing becoming mandatory.
Market snapshot
Fed
Rates at 4.25 to 4.50 percent, held for the fifth meeting in a row. But the key is not the number, it is the person. Warsh took the wheel on May 22, and beneath the vote the balance sheet is already turning over reserve management purchases (RMP), the quiet liquidity current. Powell stayed on the board to watch.
ECB
Deposit rate at 2.00 percent, the decision unanimous. But Lagarde admitted that upside risks to inflation and downside risks to growth have intensified. Euro area inflation jumped to 3 percent, driven by war energy prices. The ECB sits between two fires, and calls it wait-and-see.
BOJ and PBOC
Japan holds 0.75 percent, but the yen is near 159, and the Ministry of Finance has already spent about 35 billion dollars on intervention when the yen slipped past 160. JGB long-end yields are near their highest in almost 30 years. China’s yuan is the strongest since February 2023, with the PBOC fix at 6.8288, driven by an AI export boom.
Synthesis: the three big central banks are moving at different speeds. The Fed quietly pumps liquidity, the ECB is stuck, the BOJ is late, and the yuan rises. This is not coordination, it is divergence. And divergence means a redistribution of capital flows, which gold is already pricing.
🛢️ Middle East / Energy
The 2026 Iran war, which began on February 28, remains the axis of global oil. The Strait of Hormuz still operates at about 5 percent of pre-war vessel traffic. This week the US and Iran reached a 60-day ceasefire framework with a promise to de-mine and reopen the strait. Trump has not signed yet, and the dispute over sovereignty, the nuclear program and sanctions remains. Structurally: oil is falling not because the strait opened, but because the market is pricing the hope of it opening.
🇺🇦 Ukraine
Trump announced a three-day ceasefire from May 9 to 11, with an exchange of a thousand prisoners from each side. But that is a one-off episode, not a turning point. Putin is continuing a war of attrition, and negotiations have stalled with no clear date. On the diplomatic front Merz offered Ukraine associate member status in the EU, participation without voting rights, and called it reality, since full membership in the near term is “unrealistic.” Zelensky rejected the offer. Economically Ukraine remains dependent on donors, and the reconstruction question is postponed until there is a ceasefire.
🇨🇳 China / US
Vice Premier He Lifeng called Bessent and Greer to prepare a summit, even though both sides just imposed fresh restrictions after a year of trade truce. The yuan is strengthening for a second straight month, driven by AI exports. On May 8 Taiwan approved a special defense budget of 780 billion Taiwan dollars, about 25 billion US dollars.
🇷🇺 Russia / sanctions
On April 23 the EU adopted its 20th sanctions package, targeting maintenance of Russian LNG tankers and icebreakers and terminal services. The shadow fleet is already 557 vessels. The war in Hormuz lifts oil prices, which temporarily fills both Moscow’s and Tehran’s treasuries.
🇪🇺 Europe politically
Merz’s approval fell to minus 48, the steepest decline among European leaders. He launched a crusade against EU regulation and sometimes attacks the Commission in Brussels so sharply that other leaders step in to defend it. The German chancellor’s weakness at home directly weakens the EU’s ability to speak with one voice.
🌍 OPEC+
The cartel took a hit, the UAE walked out. The first meeting without the UAE agreed to raise June output by 188 thousand b/d, less than May’s 206 thousand. The 41st ministerial meeting is on June 7. When the biggest guardian of production discipline starts to crumble, the price floor gets softer.
The UAE left, Hormuz is half-shut, and oil still falls. What does the market see that we don’t. Maybe only that the war discount evaporates faster than the war ends.
- Budget finish. The Seimas finished its second reading and votes finally this week on the 2026 budget. The fight is over an extra 116.8 million euros, most of it for salaries of education staff and public officers.
- Record defense. 4.79 billion euros, 5.38 percent of GDP, the highest figure in all of NATO. About 60 percent goes to military modernization and building a national division.
- Drone in Latvia. In early May, stray Ukrainian drones fell on Latvian territory, one exploding near an oil storage facility. Vilnius and Riga called on NATO to strengthen air defenses.
- Infrastructure fund. Energy Minister Vaičiūnas, with his Baltic colleagues, wants the EU to allocate at least 2 billion euros for protecting critical infrastructure.
- NATO eastern flank. There are reports of plans to deploy three additional divisions in the Baltic region. The Baltic states already get about 80 percent of their LNG from the US, after cutting ties with Russian energy in February 2025.
- Kojala. GSSC head Linas Kojala hosted the 11th Vilnius Forum this month, where panels discussed deterring strikes below NATO’s Article 5 threshold. His thesis: Russia itself is the biggest driver of NATO unity.
Chart thermometer
Oil’s direction is binary, decided by a single Trump signature. If the framework collapses, WTI would return above 95 quickly. Gold holds firm, a break above 4,600 would confirm a new leg. Equities sit at a dangerous altitude with a calm VIX, a classic mark of a complacent top.
Invalidation levels: BTC below 70K opens 65K · oil above 95 would mean the framework failed · the yen above 160 would invite intervention again.
What the voices say this week
Base case: the US is entering a long stretch of large fiscal deficits, which in 2026 will be accompanied by a gradually expanding Fed balance sheet to support financial-sector liquidity. That, she argues, is a second tailwind for emerging-market equities. A near-term crisis is unlikely, because “nothing stops this train.”
Highlights the Fed’s new reserve management purchases (RMP) program as stealth money printing. His logic: when the Treasury needs to fund the deficit and the banking system needs liquidity, the balance sheet expands regardless of the rhetoric. That, he says, favors BTC and ETH into 2026.
Global liquidity hit a record near 189 trillion, but the momentum is fading, with a peak likely in Q4 2025 or early 2026. Gold, he argues, is being driven by China, and that is structural, not speculative buying. His advice: buy gold and crypto only on dips.
Sees a final blow-off top with an S&P target around 7,500, which the market has already reached. After it, a recession no later than the second quarter of 2026, then a deflationary bust and a possible 50 percent crash. He warns that even gold would see a sharp pullback, because the liquidity squeeze takes everything down.
Together with Howell he holds the thesis that the liquidity cycle may extend into 2026, supporting risk assets. The difference is a nuance: Pal sees a current that can still lift BTC, while Howell already records fading momentum.
His core thesis: the biggest driver of NATO unity is Russia itself, and the alliance will not accept a new iron curtain. At the 11th Vilnius Forum he stressed threats below the Article 5 threshold, hybrid strikes that are hard to answer with a collective response.
The real conflict this week is not about oil, it is about the phase of the cycle. Two camps look at the same 189 trillion of liquidity and see opposites.
Camp A, liquidity still drives (Hayes, Alden, Pal): the Fed balance sheet is quietly expanding through RMP, the deficit forces printing, so the blow-off top can extend. Mechanism: fiscal dominance means the Treasury is in charge and the central bank must fund it.
Camp B, momentum has already turned (Zeberg, Howell): liquidity has peaked, momentum is fading, the labor market is rolling over, the yield curve is steepening after inversion, a classic recession warning. The S&P near 7,580 has already passed Zeberg’s top target.
What resolves it: Fed balance-sheet data, whether RMP genuinely expands the balance sheet or merely offsets. Credit spreads. June’s labor statistics. And Warsh’s first words as chair, hawk or surrender to the pressure to cut.
- Howell liquidity: peak near 189 trillion, momentum fading. Shifting from expansion to ebb.
- Zeberg model: a final blow-off top now, recession in the second quarter of 2026, then a deflationary bust.
- Hegemonic cycle: the L2 tool, Fed independence, under stress (Warsh’s takeover, Powell stays). Fiscal dominance, L3, deepens.
- BTC cycle: after the 2024 halving, now correcting with ETF outflows. Signs of a late phase.
- Debt wall: about 1.9 trillion dollars of net issuance in 2026. That is a floor for the long end, despite the talk of cuts.
Watch next week
- OPEC+ ministerial meeting, June 7. The first full meeting without the UAE. What matters is not just output but whether the cartel holds together.
- Trump’s signature on the Iran framework. Oil’s direction is binary, the signature or its absence moves WTI by tens of dollars.
- US labor data. JOLTS and the jobs report (NFP), Zeberg’s recession trigger. Any softening would confirm Camp B.
- Warsh’s first words as chair. Whether he holds the hawk line or yields to the pressure to cut. This will reset expectations for the dollar and gold.
- BTC 70K support. Losing it opens 65K. Watch for a turn in ETF flows.
- Lithuania’s final budget vote. And the defense allocation details from the Government.
- Gold 4,600 and the yen at 160. A gold break would confirm a new leg, the yen level would again invite Tokyo intervention.