Falling oil prices are not a "cure" for inflation: AI investment and overheated domestic demand put the Federal Reserve in a dilemma, and the market maintains its bet on two rate hikes this year.

According to Mars Finance, on June 26, oil prices fell rapidly after the US-Iran ceasefire and the reopening of the Strait of Hormuz. While this seemingly alleviated inflationary pressures, market bets on a Federal Reserve rate hike remained virtually unchanged – a rare divergence that is sparking deep discussion on Wall Street. Reuters columnist Mike Dolan points out that the core contradiction lies in the fact that the US economy had already shown signs of overheating before the Iranian conflict, with core inflation exceeding the Fed's 2% target by more than one percentage point in January and February. The decline in oil prices not only fails to eliminate inflation stickiness but may also release previously suppressed consumer and investment demand, further pushing up price pressures and trapping the Fed in a double dilemma: rising oil prices push up inflation, while falling oil prices stimulate overheating. Apollo Global Management's chief economist, Slok, bluntly stated that the traditional positive correlation between oil prices and 2-year US Treasury yields has failed, and the mainstream market view has shifted to "the reopening of the Strait of Hormuz will further exacerbate the US economic overheating." The May PCE figure, released on Thursday, rose to 3.4% year-on-year, continuing to exceed the policy target; the June composite PMI also exceeded expectations, indicating that corporate price pressures remain high. Meanwhile, the AI capital expenditure boom is driving a continued bull market and expanding household wealth, creating a self-reinforcing inflation cycle. JPMorgan Chase, in its mid-year outlook, clearly stated that the Fed's next round of operations is likely to be an interest rate hike, although the timing may be delayed until 2027, differing from the pricing of the two rate hikes in the futures market this year. The bank's strategy team warned that the probability of a "Goldilocks-like" scenario of low inflation and moderate growth continues to decline, and the necessity for selective rate hikes continues to rise. Furthermore, the policy communication reforms implemented by Fed Chairman Warsh—significantly reducing forward guidance—further increase the difficulty of market trading. Morgan Stanley judges that this will significantly increase market sensitivity to economic data, with the short-term fixed-income asset volatility center continuing to rise, and macroeconomic trading uncertainty increasing rather than decreasing.