Bitunix analysts: The Federal Reserve has downplayed policy guidance, with "uncertainty premium" becoming the main battleground, rather than the interest rate path.
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Federal Reserve Governor Waller: If necessary, the use of forward guidance can be abandoned to maintain policy flexibility.
PANews reported on July 6 that Federal Reserve Governor Waller stated at a conference on monetary policy transmission in Rome, Italy, that monetary policy decisions must be based on the current "initial conditions" of the economy and cannot mechanically apply historical averages. He pointed out that large-scale shocks can trigger non-linear behavioral changes, thereby altering the time lag of monetary policy and the slope of the Phillips curve. Waller emphasized that forward guidance can influence the market in advance and accelerate policy transmission under certain conditions, but if the wording is too rigid or faces multiple possible scenarios, it will limit FOMC operations such as interest rate hikes and delay the timing of adjustments. The Federal Reserve has established a working group to assess the role of forward guidance, and he believes that in some situations, the use of this tool should be weakened or even stopped, and decisions should rely more on real-time economic data.
Federal Reserve Bank of Walter offered two key considerations for monetary policy: initial conditions and forward guidance determine the transmission effect.
According to Odaily Odaily, Federal Reserve Bank of Walter Waller offered two points of consideration regarding the monetary policy transmission mechanism, emphasizing that policy effectiveness depends on initial conditions and the way forward guidance is used: First, "initial conditions are crucial," meaning monetary policy assessments should be based on current economic conditions, not historical averages. Second, regarding the role of forward guidance, he believes that while forward guidance can accelerate policy transmission in certain situations by influencing market expectations and changing financial conditions in advance, if it is too rigid or lacks flexibility, it may weaken policy effectiveness or even delay necessary policy adjustments. Waller emphasized that when multiple economic scenarios exist, the “average path” cannot be simply used as a basis for policy guidance, and policymaking needs to maintain adaptability and flexibility to different scenarios.
A Wall Street veteran says the continuation of the US stock market bull run depends on the Federal Reserve's policy stance, with very little room for error.
According to Mars Finance, on July 2nd, Bob Doll, CEO of Crossmark Global Investments, stated that the current US stock market is in a "high-risk bull market." With inflation consistently above the 2% target, for the market to continue its upward trend, two conditions must be met simultaneously: continued better-than-expected corporate earnings and the Federal Reserve maintaining a neutral or even accommodative policy. Doll pointed out that although oil prices have recently fallen, US inflation remains above the target level, and the current rate-cutting cycle may be nearing its end, with the possibility of another rate hike this year not ruled out. With valuations at historically high levels, the market's reliance on earnings and policy has significantly increased, resulting in a lower overall margin for error. FactSet data shows that institutional consensus expects the S&P 500 to rise approximately 21.2% over the next 12 months, with a target of around 8918 points. Second-quarter earnings growth is projected at 23.1%, potentially maintaining growth above 20% for two consecutive quarters. The current forward P/E ratio is approximately 20.1, slightly higher than the five-year average. Regarding monetary policy, the market is largely focused on the latest remarks from Federal Reserve Chairman Kevin Warsh. He did not provide clear guidance on whether there would be a rate hike in July, reiterating that the Fed will weaken forward guidance, emphasize reliance on economic data, and maintain its goal of keeping inflation back at 2%. His speech caused the yield on the two-year US Treasury note to fall to approximately 4.15%, cooling market bets on a rate hike this year. However, overall expectations still suggest a possible rate hike in 2026, while the baseline scenario favors maintaining interest rates unchanged until 2027.
Bitunix Analyst: Market Awaits Non-Farm Payrolls Data; Fed Maintains Data-Driven Policy Stance
According to BlockBeats, on July 2nd, global markets remained cautious, with funds focused on the upcoming US June non-farm payroll report. The market generally expects job growth to slow compared to the previous month, but whether the labor market remains resilient, and whether there are new changes in wages and the unemployment rate, will directly affect market judgment on the Federal Reserve's subsequent policy path. Prior to the data release, ADP job growth was lower than market expectations, but corporate layoffs remained low, indicating that the US job market has not yet shown significant signs of weakening, and the market still needs further confirmation from the non-farm payroll data. Federal Reserve Chairman Warsh stated at the Global Central Bank Forum that recent inflation expectations and inflation risks have declined, but reiterated that he would not provide forward policy guidance and stated that balance sheet reduction will continue, while the dot plot will remain a policy communication tool in the short term. Overall, the Federal Reserve did not release a clear signal of a policy shift, but continued to emphasize adjusting policy based on economic data, shifting market focus back to employment, inflation, and subsequent economic data themselves, rather than trading in policy outcomes in advance. Regarding global liquidity, Japan's monetary policy remains a key variable closely watched by the market. Recent improvements in business sentiment and inflation expectations have led the market to still anticipate the possibility of further interest rate hikes by the Bank of Japan this year; however, the yen remains near historically low levels, indicating that global funds are still primarily influenced by US dollar interest rates and the US-Japan interest rate differential. Further normalization of Japanese policy could continue to drive global arbitrage trading and cross-market capital flows, becoming a significant factor affecting global liquidity. In the cryptocurrency market, Bitcoin continues to consolidate within a range, and market risk appetite has not yet shown significant improvement. Given the Federal Reserve's continued data-driven decision-making, the ongoing uncertainty surrounding Japan's monetary policy, and the global market's continued awaiting confirmation from key economic data, short-term market sentiment will remain dominated by macroeconomic events. The upcoming non-farm payroll report and speeches by Federal Reserve officials will remain crucial indicators of volatility in global risk assets and the cryptocurrency market.
Analysis: US June employment data may make inflation a major driver of the Federal Reserve's policy.
According to BlockBeats, on July 1st, BeiChen Lin, Senior Investment Strategist at Russell Investments, stated in a report that he expects U.S. job growth to remain strong in June, meaning inflation is likely to continue to dominate in determining the Federal Reserve's policy path. He stated, "If the labor market remains robust, inflation is likely to be a key factor influencing the Fed's next move." He added that given the recent increase in mergers and acquisitions, initial public offerings (IPOs), and debt issuance, a key focus is whether job growth in the financial services sector accelerates. Relevant data will be released on Thursday. (Jinshi)
June non-farm payroll data may be cooler, with the market expecting 110,000 new jobs. The Federal Reserve's policy path is under close scrutiny.
According to BlockBeats, the US will release its June non-farm payrolls report at 8:30 PM Beijing time on July 2nd. The market widely expects 110,000 new non-farm jobs in June, lower than May's 172,000; the unemployment rate is expected to remain at 4.3%, with average hourly earnings rising 0.3% month-over-month. The market is focused on two core issues surrounding the June data: first, whether the job market will continue to tighten after May; and second, whether May's strong performance was affected by one-off factors, particularly the short-term labor demand generated by the World Cup. This will directly impact interest rate expectations. The current stabilization of the US job market has reduced the necessity for the Federal Reserve to continue cutting interest rates. Unlike last year's rate cuts, the financial market currently widely expects the Fed to raise rates sometime this year to address inflationary pressures. However, if the job market unexpectedly weakens, this expectation could quickly reverse. If employment data is stronger than expected, the market may further reduce its expectations for interest rate cuts, or even re-priced in the possibility of rate hikes, putting pressure on highly valued assets such as technology stocks. Conversely, if the data is significantly weak, it may boost expectations for rate cuts, but it will also trigger market concerns about the prospects for US economic growth and corporate profits. The market is also paying close attention to the volatility of assets such as the US dollar, US Treasury yields, and the Japanese yen exchange rate.