Financial Market Dynamics and Open Market Operations - The current target range for the federal funds rate is approaching a neutral level, with GDP forecasts for 2025 to 2027 similar to those prepared for the June meeting [1] - Almost all participants at the Federal Reserve's July meeting agreed that maintaining the benchmark interest rate in the range of 4.25% to 4.50% is appropriate [1] - The impact of tariffs is becoming more evident in commodity prices, but the overall effect on the economy and inflation remains to be seen [1] - The market perceives the overall U.S. economy as resilient, but financial markets are beginning to differentiate between individual companies based on earnings scale and quality [1] - Existing data shows that foreign holdings of U.S. assets remain relatively stable [1] - Reserves remain in a state of abundance [1] Economic Situation Assessment - Actual GDP growth in the first half of the year has been moderate, with the unemployment rate remaining low and consumer price inflation still slightly elevated [1] - Inflation appears to have stagnated, with tariffs exerting upward pressure on commodity price inflation [1] - The labor market remains robust [1] Financial Situation Assessment - The U.S. financial system is still described as "significantly" fragile, with asset valuation pressures remaining high [1] - Vulnerabilities related to non-financial corporate and household debt are characterized as "moderate," with household debt to GDP ratio at its lowest level in the past 20 years and household balance sheets remaining strong [1] - The debt repayment capacity of listed companies remains strong [1] Economic Outlook - Commodity price increases are expected to be smaller and occur later than previously anticipated, with financial conditions expected to provide slightly stronger support for output growth [1] - The labor market is anticipated to weaken, with the unemployment rate expected to rise above the estimated natural rate by the end of this year and remain above it until 2027 [1] - Tariffs are expected to push inflation higher this year and provide further upward pressure on inflation in 2026, with inflation projected to decline to 2% by 2027 [1] - High uncertainty remains, primarily reflecting changes in economic policy and their related economic impacts [1] Current Economic Conditions and Outlook - Overall inflation remains slightly above the long-term target of 2%, but excluding tariff effects, inflation is close to the target [1] - Short-term inflation is expected to rise, with significant uncertainty regarding the impact of tariffs, which will take time to manifest in prices [1] - Current demand conditions limit companies' ability to pass tariff costs onto prices [1] - Long-term inflation expectations remain stable [1] - The unemployment rate remains low, with employment at or near maximum estimated levels [1] - Economic activity growth is expected to remain low in the second half of the year, with weakened housing demand, increased unsold homes, and declining home prices [1] - Uncertainty regarding the economic outlook remains high, emphasizing upward inflation risks and downward employment risks [1] - Concerns about the fragility of the U.S. Treasury market may increase demand for U.S. government bonds [1]

Core Viewpoint - The significant rise in U.S. long-term Treasury yields has led to an increase in the U.S. dollar against a basket of currencies, with the dollar index showing fluctuations throughout the trading day [1][2][3]. Group 1: U.S. Treasury Yields and Dollar Index - The U.S. 10-year Treasury yield increased by 6.5 basis points, closing at 4.538%, providing support for the dollar [3]. - The dollar index rose by 0.03%, closing at 101.037 [2]. Group 2: Inflation and Economic Outlook - Federal Reserve Vice Chairman Philip Jefferson noted that while recent inflation data shows progress towards the 2% target, the outlook remains uncertain due to potential price increases from import tariffs [3]. - Chicago Fed President Austan Goolsbee stated that April's mild consumer price inflation may not reflect the impact of rising import tariffs, indicating a need for more data to assess price and economic trends [3]. Group 3: Currency Movements and Trade Negotiations - Market rumors suggested that the U.S. is seeking a weaker dollar in trade negotiations, but this was denied by Bloomberg citing anonymous sources [4]. - The Japanese yen saw the largest gain against the dollar among G10 currencies, supported by potential discussions on exchange rates in trade talks and hawkish comments from the Bank of Japan's Deputy Governor [4]. - As of the end of the New York trading session, the euro was at 1.1178 USD, the pound at 1.3264 USD, and the dollar was at 146.72 JPY, among other currency values [4].