Summary
Highlights
The Fed left interest rates in the range of 3.5% - 3.75%. The decision was not unanimous, with 3 dissenters in favour of a hike, revealing divisions within the FOMC.
Fed Chair Warsh reiterated the Fedâs commitment to restoring price stability, while emphasising efforts to rethink the Fedâs framework for inflation analysis.
Two-year yields fell as investors scaled back expectations of near-term hikes, while 30-year yields rose to a 19-year high, pointing to a higher risk-premium.
In this edition
The Fed left interest rates unchanged at Kevin Warshâs second meeting as Chair, reinforcing our view that his hawkishness remains stronger in rhetoric than in action. Warsh described the stance as âwatchful thinkingâ, rather than âwatchful waitingâ, suggesting a more active assessment of the economic backdrop. He also noted that financial conditions have tightened materially as yields have risen, framing markets as an important source of information, while reiterating plans to reduce policy guidance. Recent benign inflation data likely gave the Fed room to stay on hold, but Warshâs description of the economy as solid and inflation still above target has left investors sceptical. Bond-market movements in the immediate aftermath of the meeting highlighted uncertainty over the short-rate path and inflation dynamics. In our view, the Fed is likely to remain on hold until Q2 next year, before easing resumes as inflation normalises amid softer demand and lower tensions in the Middle East.
Key dates
3 Aug China PMI Manufacturing, EZ PMI Manufacturing, US ISM Manufacturing |
5 Aug China PMI services, EZ PMI Services, US ISM Services, India policy rate |
6 Aug EZ Retail sales, US Nonfarm Payrolls |
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