Core Viewpoint - The Federal Reserve is facing a complex decision-making moment characterized by a "triple dilemma" involving a weakening labor market, persistent core inflation pressures, and increasing political interference from the White House [1] Economic Data Divergence - Recent economic data indicates a contradictory phase for the U.S. economy, with signs of a cooling labor market as initial jobless claims reach a three-month high and continued claims rise to a two-and-a-half-year peak [2] - The manufacturing PMI showed a temporary rebound due to a surge in new orders, but capacity utilization remains below long-term averages, reflecting pessimistic future demand expectations [2] - The quality and stability of new job positions are declining, despite the unemployment rate being at historical lows [2] Inflation Dynamics - Core CPI growth slowed to 3.2% year-on-year in July, yet wholesale prices have risen for three consecutive months, with the producer price index (PPI) recording its largest monthly increase in three years [3] - Service sector inflation, particularly in healthcare and education, accelerated to 4.1% [3] - Proposed tariffs of up to 300% on key sectors like semiconductors and pharmaceuticals are beginning to impact corporate costs, with some manufacturers experiencing cost increases of 2%-5% [3] Internal Policy Divisions - The Federal Reserve is experiencing increasing internal policy divisions, with hawkish members advocating for no rate cuts due to high inflation, while dovish members suggest preemptive rate cuts if labor market conditions worsen [4][5] - The debate reflects the Fed's struggle to balance its dual mandate of maximum employment and price stability, revealing limitations in its average inflation targeting framework [5] Market Expectations - The futures market indicates a 73.5% probability of a rate cut in September, with an expected cumulative cut of 47 basis points for the year, although this consensus is built on fragile foundations [6] - Despite weak employment data supporting rate cuts, the significant rise in wholesale prices has been largely overlooked by the market [6] Political Pressures - Political factors complicate the decision-making environment, with former President Trump pressuring the Fed for immediate rate cuts and criticizing Chair Powell for delayed actions [7] - Investigations into Fed Governor Lisa Cook by the Justice Department could further threaten the Fed's independence, especially if political appointments shift the board's balance [7] Jackson Hole Meeting - The upcoming Jackson Hole speech by Powell is anticipated to be a critical moment for policy direction, with expectations of a "fuzzy" strategy that acknowledges economic risks while emphasizing the need to monitor inflation [8] - The Fed's policy path will face tests related to tariff impacts, political pressures, and market expectations, with a likely approach of gradual rate cuts [8]

Core Viewpoint - Federal Reserve Governor Christopher Waller advocates for a 25 basis point interest rate cut at the upcoming FOMC meeting on July 29-30, highlighting structural challenges facing the U.S. economy [1][3]. Economic Growth and Labor Market - The U.S. economy is experiencing a slowdown in growth momentum, evidenced by weakening hard economic indicators (industrial production, retail sales) and soft market sentiment data [3]. - The labor market is in a "critical state," with signs of slowing hiring rates and a mild increase in unemployment, posing a threat to the Fed's dual mandate of achieving full employment [3]. - Waller's assertion that the current policy rate (4.25%-4.5%) is significantly above the neutral rate (approximately 3%) supports his call for a rate cut [3]. Trade Policy and Inflation - Waller presents a differentiated analysis of trade policy impacts on inflation, suggesting that a hypothetical 10% tariff would only translate to a 0.75%-1% increase in the Consumer Price Index (CPI), characterized as "one-time and non-persistent" [4]. - He emphasizes that the Fed should focus on long-term economic trends rather than short-term price fluctuations, especially as core inflation expectations remain stable [4]. Policy Path and Flexibility - Waller outlines a clear policy adjustment roadmap, indicating that the July rate cut is just the beginning, with future actions strictly adhering to data dependency principles [5]. - He notes that if economic data confirms accelerating weakness, further rate cuts may be considered, while stronger-than-expected data could lead to a pause in adjustments [5]. Market Impact and Investment Strategy - Waller's remarks have significantly increased the probability of a July rate cut, with market pricing for a rate cut exceeding 60% prior to the meeting [8]. - In the bond market, the yield curve may steepen, with short-term Treasury yields likely to decline due to anticipated rate cuts [8]. - The dollar index may face temporary pressure in the forex market, while growth stocks could benefit from lower interest rate expectations, although caution is warranted regarding potential impacts on corporate earnings due to economic slowdown [8]. Strategic Recommendations - Investors are advised to utilize forex options to construct dollar volatility hedging strategies and to consider the allocation value of safe-haven assets like gold amid policy uncertainty [9]. - ETO Markets will continue to monitor economic data releases and official statements to provide forward-looking strategic support for investors [9].

Group 1 - The Bank of Japan decided to maintain the short-term interest rate at 0.5% and plans to slow down the reduction of its balance sheet next year, indicating a cautious approach to unwinding a decade-long large-scale stimulus policy [1] - The Bank of Japan's Governor, Kazuo Ueda, emphasized the need to closely monitor upcoming economic data and the overall inflation situation before considering any rate hikes [1] - There is a recognition of high uncertainty in the economic environment, with mixed signals from sentiment surveys and actual economic data, which complicates the timing of potential interest rate increases [1] Group 2 - Trade uncertainties are expected to suppress winter bonuses and next year's wage negotiations, with actual impacts difficult to predict until more data is available [2] - The ongoing tensions in the Middle East and rising food prices could affect inflation expectations and potential inflation in Japan, necessitating careful monitoring of these developments [2] - The impact of trade tensions may primarily manifest through declining manufacturing profits, prompting companies to adopt cost-cutting pricing strategies [2] Group 3 - Recent data shows consumer inflation fluctuating around 3%, primarily driven by rising import costs and rice prices, although these pressures are expected to gradually dissipate [3] - There is a significant uncertainty surrounding global trade policies, which poses greater downside risks to Japan's economy and price levels [3]