CICC: Waller attempts to "outsource" some tightening functions, which may lead the market to price in the Fed acting too late

Odaily Planet Daily News, CICC research report states that the Federal Reserve kept interest rates unchanged at its July meeting, but the internal hawkish stance strengthened further, with three voting members supporting a 25 basis point rate hike. We believe the biggest change in this meeting was not the rate decision, but Waller's attempt to reduce policy intervention, relying more on a spontaneous rise in market rates to tighten financial conditions, essentially "outsourcing" some tightening functions to the market. However, with inflation persisting above target, this approach could easily undermine market confidence in the Fed's policy credibility. After the meeting, long-end U.S. Treasury yields rose sharply and the curve steepened significantly, potentially reflecting investors beginning to price in higher long-term inflation and policy risks. Looking ahead, we believe that if employment or inflation data exceed expectations, the market will not only further raise expectations for a September rate hike but may also price in the risk of the Fed "acting too late." Long-end rates could rise further, and risk assets will also face greater adjustment pressure. (Jin Shi)