July 29 International Forex News

Huatai Macro: Probability of a Fed Rate Hike in July Is Slightly Above Half

July 29: A Huatai Macro research report said that after Kevin Warsh took office as the new Federal Reserve Chair, financial markets shifted their pricing of the new chair’s policy stance from the previous dovish rate-cut expectation to a more hawkish short-term position. However, as the July FOMC meeting approaches, market expectations for the Fed’s next policy move have become extremely divided.

After Warsh abolished forward guidance, market pricing has become more difficult, and the focus of the game between Warsh and the market will inevitably shift from “listening to what he says” to “watching what he does.” Based on a comprehensive analysis of historical Fed chair transitions, the current macro environment, and Warsh’s goal of gaining credibility, Huatai has brought forward its forecast timing for a Fed rate hike. It expects the probability of a July rate hike to be slightly above half, higher than the market’s current expectation of 40%. Under the baseline scenario, the probability of Warsh raising rates before September is close to 100%. From the perspective of the game between the new chair and the market, the overall cost of a July rate hike may be lower.

Guan Tao: Warsh’s Deeper Intention May Still Lean Toward Rate Cuts

July 29: Guan Tao, global chief economist at BOC Securities, wrote that internal divisions within the Federal Reserve over the U.S. inflation trend and interest rate policy will continue, clearly divided into three camps: first, the dovish camp represented by Williams; second, the neutral camp represented by Waller; and third, the hawkish camp represented by Warsh.

On July 15, Warsh testified before the Senate Banking Committee and frequently expressed dissatisfaction with inflation, reiterating the Fed’s “zero tolerance” for high inflation and its continued commitment to bringing inflation back to target.

Overall, it cannot be ruled out that Warsh is currently using the resilience of the U.S. economy and employment as an opportunity to demonstrate a hawkish stance in defending the Fed’s price stability mandate and independence, in order to quickly establish authority in both the market and within the Fed and anchor market inflation expectations.

However, judging from his push to revise the inflation framework and his long-term assessment of AI’s disinflationary effects, Warsh’s deeper intention may still lean toward rate cuts. In his debut, he even said he cared more about “the number to the left of the decimal point” in inflation. In this sense, the Fed is likely to maintain the status quo during the year. On the contrary, in 2026 and 2027, if financial turmoil, recession, or employment deterioration occurs in the U.S. under internal and external shocks, the Fed may still restart rate cuts. Current market pricing for rate hikes may already be excessive. (Shanghai Securities News)