View Update: Will Wosh Surprise with a Rate Hike at the July FOMC Meeting? We Think It Remains a Low-Probability Event.

English summary

1. Currently, CME FedWatch prices a ~40% probability of a rate hike at the July FOMC meeting (10bp), fully prices in a 25bp hike before September, and in total prices in 38bp of hikes this year (less than two hikes). 2. Oil is the main disturbance behind the recent rise in rate hike expectations, but: 1) 5-year and 10-year breakeven inflation have fallen back to end-February levels, and the 5y5y forward inflation expectation (2.25%) is at recent highs but still in line with the average in recent years; 2) inflation attribution is more important (the main task of the inflation framework group). For example: demand-side inflation is the number '1', supply-side inflation is the number '0'. Since current U.S. inflation pressure is mainly supply-side (oil prices + tariffs), 'holding steady' remains the optimal strategy. 3. A surprise rate hike would help Wosh establish authority as an 'inflation hawk' and stabilize inflation expectations, at the cost of 'manufactured volatility,' and risks are uncontrollable when the market is fragile. ...