Summary of Key Points
The Federal Reserve's July interest rate meeting decided to maintain the benchmark interest rate at 3.5%-3.75%, but there were dissenting votes within the committee, indicating clear differences in officials' positions (with the hawks being in the majority). Inflation data in June showed a temporary cooling (the CPI fell for the first time on a monthly basis), but the July conflict between the United States and Iran drove up oil prices, reinstating the risk of inflation rebounding. The job market remains stable (the number of people receiving unemployment benefits has reached a 57-year low), which supports the hawks' argument for raising interest rates. The market is focused on whether a rate hike will occur in September, with various institutions having different predictions, and the Nasdaq index has entered a correction zone due to these uncertainties.
Detailed Analysis
1. July Meeting: No Rate Hike, but Disagreement Exists
The Fed did not raise interest rates at this meeting, but Chair Powell may have faced opposition:
- Reasons for Not Raising Rates: In June, the U.S. CPI rose by 3.5% year-on-year and fell by 0.4% month-on-month (the first monthly decline since the pandemic), mainly due to a 5.7% drop in energy prices, which reduced the urgency for immediate rate hikes.
- Source of Disagreement: Hawkish officials are concerned about inflation rebounding. The July conflict between the U.S. and Iran pushed Brent crude oil back above $90 per barrel, reigniting energy-related inflation, leading them to oppose maintaining the current interest rate level.
2. Inflation: Just Cooling Down, Only to Hit a Hurdle
Inflation has been volatile:
- Good News: June's data provided some relief, with falling energy prices being a key factor.
- Bad News: The U.S.-Iran conflict has disrupted shipping, and rising oil prices suggest that inflation could rise again in the future. The Fed is in a dilemma: it cannot completely relax its tightening measures based on June's data, nor can it raise rates immediately due to the uncertain outcome of the conflict.
3. Job Market: Stability Supports the Hawks
The job market has performed better than expected:
- Although only 57,000 new jobs were created in June, the unemployment rate remained under control, and the number of people applying for unemployment benefits reached a 57-year low.
- Companies have not engaged in large-scale layoffs (even though tech giants are optimizing their workforce, employers are generally avoiding voluntary dismissals), indicating a stable labor market.
- Hawkish officials believe that with such stability in the job market, the economy can withstand rate hikes, so they are more inclined to tighten policies to control inflation.
4. Divided Official Positions: Hawks Prevail
There has been a clear divergence in recent statements from Fed officials:
- Hawks in the Majority: Officials like Powell and Logan are worried about inflation rebounding and emphasize that high prices cannot be tolerated.
- Doveish Official (1 Person): Williams clearly stated that current policy is appropriate and that inflation has peaked.
- Chair Powell also expressed a commitment to maintaining the independence of monetary policy, demonstrating the Fed's determination to control inflation. This disagreement led to dissent at the meeting and increased market anxiety about future rate hikes.
5. September as a "Critical Bet": Markets and Institutions Have Different Views
Everyone is now focusing on the September meeting:
- Market Expectations: CME tools indicate that traders almost certainly expect a rate hike in September.
- Institutional Predictions:
- Capital Economics: Considers a rate hike in September, with more data available to verify inflation at that time.
- Danske Bank: Predicts rate hikes of 25 basis points in December and March next year, but possibly sooner.
- Oxford Economics/BNP Paribas: No immediate rate hike, but will wait to see inflation data; a further rise in oil prices or additional tariffs could change their stance.
- Impact on the U.S. Stock Market: The Nasdaq index has fallen by more than 10% recently and entered a correction zone. Rate hikes typically pressure growth stocks (such as tech companies), and the market is reacting with anxiety in advance.
Overall, the Fed is in a wait-and-see stance but could act at any time. Inflation and job market data in September will be crucial in determining whether rates are raised. Investors should pay attention to oil price trends and subsequent economic data to avoid unexpected policy changes that could cause losses.