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].