Good morning and welcome to FirstFT. In today’s newsletter:

• Fed officials tilt towards rate rise

• US and Iran sign deal

• Netanyahu and Modi: an unlikely alliance

• A fresh perspective on Chinese fashion

The new era at the Federal Reserve began with chair Kevin Warsh promising “to deliver price stability”, triggering a sell-off in government bonds as traders cranked up bets on interest rate rises.

A more hawkish Fed: Warsh, who was Donald Trump’s pick to replace Jay Powell, said persistently high prices were “a burden for American people” after the rate-setting committee unanimously backed the decision to hold borrowing costs at 3.5 per cent to 3.75 per cent. It was the first meeting without a dissenting vote since June 2025.

Nine of the 18 officials who submitted inflation estimates expect higher rates by the end of the year, a powerful shift from March when no officials anticipated rises. Inflation has been persistently above the Fed’s 2 per cent target but was expected to fall this year before the outbreak of war in the Middle East.

Treasury market sell-off: The new hawkish tone from the Fed triggered a sell-off in the US government bond market. The yield on the two-year Treasury, which reflects markets’ bets on the direction of interest rates, soared as much as 17 percentage points to 4.22 per cent. The dollar rose by almost 1 per cent against a basket of half a dozen peers, while the blue-chip S&P 500 share index dropped 1.2 per cent.

The Fed funds futures market is now pricing in an 85 per cent chance of the Fed raising interest rates by the end of the year, according to CME FedWatch.

US equities are expected to rebound at the open later today and the dollar remains stronger against a basket of currencies, including the yen, euro and sterling. Brent crude, the international oil benchmark, continued to fall following the signing of the peace deal between the US and Iran (more on that below).

Reforming the Fed: The Fed chair also vowed far-reaching reform at the US central bank as he ushered in a new era.

Warsh said he wanted to see a less-is-more approach to communication with the market, rolling back a more open approach ushered in by Ben Bernanke and continued by Janet Yellen and Jay Powell. Warsh is likely to return to the more opaque era of Alan Greenspan, whom he has long admired.

He kicked off this new approach by refusing to reveal his own estimate of where interest rates in the US are likely to go. Warsh is known to be opposed to the so-called dot plot, the summary of interest rates expectations from members of the Federal Open Market Committee.

He also suggested the Fed might dial back its press conferences. “You want to make sure you have something important to say.”

Warsh signalled his desire to shrink the size of the Fed’s balance sheet. The US central bank has bought trillions of dollars’ worth of US government bonds since the 2008 financial crisis, a policy Warsh said strayed into territory best left to Congress.

And on economic data, Warsh said the current sources provided “echoes of history” instead of real-time insights and were frequently subject to revisions. He criticised the survey methods used by the Fed and agencies such as the Bureau of Labor Statistics.

He said a series of task forces he had created would mostly complete their reviews by the end of the year.

• Go deeper: US economics editor Claire Jones and US economics correspondent Myles McCormick write about the five things we learned from Kevin Warsh’s first press conference as Fed chair.

Here’s what else I’m keeping tabs on today:

• UK politics: Voters go to the polls in a crucial by-election in the north-west of England. If the Labour candidate Andy Burnham wins the contest he has vowed to challenge Sir Keir Starmer for the leadership of his party. A change of party leader would result in a new UK prime minister. UK political editor George Parker visited the constituency of Makerfield.

• Live Q&A: US financial editor Robert Armstrong and markets columnist Katie Martin answer readers’ questions from 8am Eastern time for an hour. You can submit your question here.

Five more top stories

1. The US and Iran yesterday electronically signed an interim deal that extends their ceasefire and offers concessions to the Islamic republic that have drawn criticism from Donald Trump’s Republican Party. The deal, which will be officially signed in Switzerland tomorrow, paves the way for the reopening of the Strait of Hormuz but has triggered a backlash among some Republicans and Trump’s critics. Read more on the 14-point memorandum of understanding.

2. JPMorgan Chase has stopped its staff in Hong Kong from accessing Anthropic’s AI models, following a similar move by rival Goldman Sachs in a sign of the intense scrutiny on the technology’s use outside the US. Employees of the Wall Street bank in the Asian financial hub are now unable to access Claude models, according to three people familiar with the situation. Owen Walker in Singapore and Arjun Neil Alim in Hong Kong have the exclusive story.

3. Wall Street groups are warning US regulators that their plans to implement “Basel Endgame” global bank capital requirements will threaten liquidity in Treasury markets, urging them to rework proposals to manage market risk. This is the latest burst of lobbying by US banks, which have already won considerable concessions, over Washington’s plans to adopt rules drawn up by global regulators on how lenders assess risk in response to the 2008 financial crisis.

4. Chinese universities are catching up with UK and US institutions whose competitive edge is being eroded by crackdowns on international students, according to a leading global ranking. While Britain and the US retained their grip on the global top 10, rivals in Asia are gaining on their mid-ranked institutions, the QS World University Rankings found.

5. A Blackstone-led consortium has agreed to take control of software group Medallia from Thoma Bravo in a deal that will cement one of the largest wipeouts in the history of the $4tn private equity industry. Thoma Bravo will lose all of the $5bn it invested in Medallia when it took the group private in 2021, under the terms of the deal announced yesterday.

Today’s big read

When Hamas militants attacked Israel in October 2023, killing about 1,200 people, the first call to Israeli Prime Minister Benjamin Netanyahu came not from Washington or Europe, but New Delhi.

Narendra Modi, India’s prime minister, used the conversation, confirmed by two people with knowledge of the exchange, to express his support for Israel.

Modi’s gesture epitomised the strong bond he has developed with Netanyahu over the past 12 years, rooted in what both men cast as their shared fight against terrorism, as well as their visions of their nations as homelands for their religious majorities. Read more on how the unlikely alliance came to be.

We’re also reading and watching . . . 

• Berkshire Hathaway: Warren Buffett, not only the greatest investor but also the most charismatic corporate leader, stepped down as CEO six months ago. It is time to ask the question what is the company for, says Robert Armstrong.

• Meta’s AI gamble: A former Goldman Sachs executive has quickly become a Silicon Valley powerbroker as she oversees the social media group’s $600bn infrastructure push.

• Pep talk: What could G7 leaders learn from a football manager? Soumaya Keynes tailors a list of lessons from one zero-sum competition for another.

• Kuper’s World Cup: A young Moroccan star displays the psychological strength of elite footballers, who excel with their heads as well as their feet.

Chart of the day

It is almost a decade since the Brexit referendum. Today’s by-election in Makerfield is a test of how enduring voters’ loyalty is to Leave or Remain.

Take a break from the news

Throughout my Chinese life, the images and feelings that I associated with Chinese fashion have frankly been a mess, writes Connie Wang, who grew up among the soyabean fields of the US Midwest in the 1990s. Her reflections were triggered by a new exhibition at the Los Angeles County Museum of Art that offers a fresh perspective on Chinese fashion.

Thanks for reading and enjoy the rest of your day. I’ll be back in your inbox tomorrow morning.

Additional reporting by Irwin Cruz and Benjamin Wilhelm.