Yes, the Fed staying on hold was no surprise, but having three dissenters against the easing bias is a hawkish shift at the margin. This has pushed short-end US yields back up.

The data out of the US has been fairly resilient, so it's not a huge surprise, but the shift of three dissenters to a more hawkish stance is notable.

The risks are there. Oil prices continue to surge and the Strait of Hormuz is still closed. There is a disconnect between core PCE and core CPI, partly due to the weighting of electronic goods in core PCE, which is shifting higher due to the AI cycle.

This is keeping a hawkish bias on one side, but on the other, Powell indicated policy is only mildly restrictive. We expect a gradual loosening of the labor market over the summer, which is why Citi maintains its view of an easing bias, but the longer the Iran crisis drags on, the more those risks increase.

We cannot presuppose Kevin Warsh will push for cuts. A lot depends on data. If the committee is moving to neutral and Warsh is biased to ease, there could be tension. However, I think he will pursue what is right for inflation credibility and the Fed's mandate.

The DOJ investigation being dropped is a positive sign for central bank independence.

Too much forward guidance during high uncertainty can add to volatility. The focus will be on the evolution of oil prices and how that translates to inflationary pressures on core goods, versus services inflation. The Fed's dual mandate is unique, and we need to see if labor market softening can balance out sticky inflation for the easing bias to persist.

Our view is that the easing bias will still persist, but the market is debating this as events evolve.

I don't think we're in a crisis. The initial shock was an orderly adjustment. East Asia was more vulnerable, and smaller, lower-income economies bore the brunt. The Philippines, for example, saw the biggest increase in fuel prices. Demand destruction is happening via the price mechanism.

As time passed into April, more economies started to pass through the fuel shock. Holdouts like India and Indonesia, which haven't adjusted fuel prices, are creating twin deficit pressures.

Korea and Taiwan are ironic cases. They are large net energy importers, but we actually upgraded their GDP growth because the AI cycle is so strong. Their pricing power on semiconductors has offset the terms of trade deterioration.

For large giants like China and India, we haven't changed our growth forecasts. China has buffers, and India has refining capacity and is suppressing demand destruction through fiscal intervention. It's really the smaller countries that are getting squeezed.

Yes. The value of strategic reserve buffers will become very important. Australia, for example, was not holding the IEA's minimum recommendation. Countries will also think about diversifying sourcing away from the Middle East, developing overland routes, and tapping more into coal. There is also a huge about-face on nuclear in Taiwan and a push for renewables in ASEAN, which has lagged.

Renewables minimize vulnerability to maritime chokepoints because you don't have to keep importing fuel. This will benefit China.

China came into the shock fairly resilient. They have a diversified energy infrastructure with a lot of coal and renewables, and massive electrification of transport. They also have strategic buffers. The export engine is still squeezing out growth, and first quarter growth was still about 5%.

The April Politburo meeting was a non-event for policy support because they don't need it yet. If the crisis drags on, they have policy space to act, possibly at the July Politburo meeting.

Yes, we are starting to see PPI rebound due to higher raw material prices. The question is if that translates to final goods prices. However, the energy shock is hitting ASEAN countries harder on transport and logistics costs, which could skew industrial competitiveness back to China.

We also need to watch El Niño, which could amplify food inflation, especially in South and Southeast Asia where food has a high weight in the CPI basket.

On a relative basis, there is more differentiation. Capital-exporting, resilient AI stories are doing better than South and Southeast Asian currencies. Countries that suppress the pass-through, like India and Indonesia, see persistent pressure on their fiscal and balance of payments, which shows up in FX or bond risk premiums.

For Korea, it's different. They are suppressing the pass-through, but their exports are doing so well that they don't have a negative terms of trade shock. They have a positive terms of trade on semiconductors.

In this cycle, the inflation part of the stagflation asymmetry is getting more acute pressure. Because global financial conditions are holding up, it seems more deflationary for now, which pushes up yields at the margin. The longer this lasts, the more central banks will join the hawkish view, but it varies in Asia. Countries like Thailand and China are still far off from a meaningful hawkish bias.

We have already seen a repricing of rate hikes in some markets.