Iran’s tentative signal to allow shipping through the Strait of Hormuz hints at a fragile compromise to ease oil flows, though markets remain cautious about its sustainability. Meanwhile, US long-term bond yields have surged as real interest rates climb, driven not by inflation fears but by a rising term premium. Investors are demanding higher returns for long-term debt, possibly due to expectations of inflation volatility or bonds losing their safe-haven status amid geopolitical tensions. Thirty-year US real rates now exceed 3%, reflecting this shift, while break-even inflation stays flat, underscoring the disconnect between market pricing and traditional inflation drivers.

The Federal Reserve and regulators proposed easing capital requirements for big banks, aiming to boost mortgage lending and reduce reliance on private credit. Changes include eliminating deductions for mortgage servicing assets and imposing a 250% risk weight on such assets, incentivizing banks to prioritize lending. Critics argue this risks reviving pre-2008 dynamics, with banks favoring trading activities over community-focused lending. Fed estimates suggest these rules could cut capital levels by 5% for top banks, a reversal of post-crisis tightening but still far from deregulation extremes. Supporters view it as modernizing rules; skeptics warn of moral hazard and reduced oversight.

Debate intensifies over whether these proposals will spur lending or fuel consolidation. Fed Governor Michelle Bowman highlights declining bank-originated mortgages (now 35% of the total, down from 60% in 2008) as a key motivator. However, opponents like Phillip Basil of Better Markets caution that easing rules without strengthening supervision could destabilize markets. The proposals face scrutiny over their potential to revive systemic risks, especially if enforcement resources remain strained. Energy crisis volatility and regulatory shifts together highlight a fragile balance between growth incentives and financial stability.

The Fed’s proposals hinge on balancing market flexibility with safeguards. While some deregulation may be warranted, experts stress that lax rules without rigorous oversight could replicate pre-crisis fragility. The outcome will depend on how aggressively regulators enforce new standards amid evolving market dynamics.