[Guohai Asset Allocation] July FOMC Commentary: Waller trades higher market interest rates for observation time

English summary

Summary: The July meeting kept policy rates unchanged, but 3 members favored immediate rate hikes, with internal pressure for hikes rising. Waller showed contradictory characteristics at the press conference: extremely hawkish in objectives, continued wait-and-see in actions, and deliberately vague in communication. On one hand, he repeatedly emphasized the 2% target; on the other hand, he gave no reason for not hiking in July and no threshold for a September hike. The Fed is trying to use the already significantly higher real rates to buy more observation time. Decision: With a 9-3 vote, the Fed kept the federal funds rate target range at 3.50%-3.75%. The statement continued to assess that economic activity is expanding solidly, productivity and capex are strong, employment growth is broadly in line with labor force growth, the unemployment rate has changed little, and inflation remains above the 2% target, partly due to supply shocks such as energy. Compared to the ~30% probability of a July hike priced in before the meeting, holding rates was slightly dovish. Press conference pointed to contradictions, with policy uncertainty actually increasing. ...