Rumors of interest rate hikes suddenly emerge

Source: Wall Street Intelligence Circle

The real risk this week is not that the Federal Reserve will suddenly raise interest rates, but that it won’t, and yet will convince the market that a rate hike is on a countdown.

This week, global markets will face the ultimate judgment—at 2:00 a.m. Beijing time on Thursday (July 30), the Federal Reserve will announce its rate decision—no increase, but a likely signal of a forthcoming hike.

From a broader perspective, this is the second meeting presided over by Walsh after taking office, oil prices are approaching $100, and the market’s expectation of a July rate hike has risen to 36%—a hike is not the base case, but has become a risk that cannot be ignored.

First, the real danger comes at 2:30 a.m., not 2:00.

· At 2:00 a.m., the Federal Reserve announces its rate decision, most likely keeping it unchanged (the current target range for the federal funds rate is 3.50%—3.75%), but the wording of the statement is critical. The market will focus on a few key phrases: Is inflation risk described as “rising”? Could the energy price shock “spread”? Is “additional policy tightening” mentioned? Is the slowdown in employment being downplayed?

· At 2:30 a.m., Walsh will hold a press conference, and since there will be no dot plot this time, every word from Walsh will be scrutinized and amplified.

Second, Bloomberg is already providing the market with an explanatory framework.

Bloomberg analysts report that Walsh is expected to maintain a hawkish stance, likely emphasizing that inflation remains too high and keeping the possibility of a September rate hike on the table.

Interpretation: For Walsh, the smartest strategy in July may not be to force a rate hike, but to tighten policy through a market-led (downward) adjustment.

In addition, Bloomberg issued another forecast—there may be two dissenting votes. Dallas Fed President Logan and Cleveland Fed President Harker may vote against, favoring an immediate rate hike.

Interpretation: If that’s the case, these “two dissenting votes” will serve as a preview for a possible September hike (which is more significant than just “no hike” this time). In June, the Fed unanimously voted 12-0 to leave rates unchanged; if Logan and Harker formally advocate a hike at the July meeting, it signals that the Fed’s hawks have escalated from “opposing continued hints at cuts” to “calling for an immediate renewed hike.”

Third, July 30 is not just one judgment day, but two in succession.

At 8:30 p.m. that night, the United States will also release: Q2 GDP advance estimate, June personal income and outlays, and the PCE inflation data which the Federal Reserve values most—these data will test the market’s focus on Walsh’s remarks.

In the Walsh era, the most valuable information is no longer the rate outcome itself, but the “dissenting votes, wording, and tone.” These three elements are the real trading clues for this week.