[Maigao Research] · July FOMC Recap: Internal Divergence Becomes Evident, Hawkish Wait Continues

English summary

Event: The Fed kept the federal funds rate target range at 3.50%–3.75% on July 29 (U.S. time), the fifth consecutive hold this year. The decision passed 9-3, with Hammack, Kashkari, and Logan all favoring a 25bp hike. (1) The three dissents mean internal hawkish divergence has become evident. Although the post-meeting statement was little changed from June, still seeing solid economic expansion and a broadly balanced labor market, the three members' support for immediate hikes reflects rising concern over persistently high inflation and policy lag risk. Holding rates this time does not mean tightening risk subsides, but rather shifts key judgments to upcoming inflation, employment, and energy price data. (2) Rising market rates have partially replaced policy tightening, a key reason for the pause. Warsh noted that nominal and real yields across the curve have risen notably since the last meeting, lifting financing costs for corporates and households. With financial conditions already tightening spontaneously, it is reasonable to observe the lagged effects.