MSX US Stock Daily Observation: Walsh's Hawkish Opening Pulls Back Rate Cut Expectations
- Core View: New Fed Chair Walsh took a hawkish stance, downplaying the June CPI cooling data and emphasizing "zero tolerance" for inflation, causing market expectations for rate cuts to quickly recede and reinforcing a "higher for longer" interest rate基调.
- Key Elements:
- June CPI fell to 3.5% year-over-year, with core CPI at 2.6%, both below expectations but still above the 2% target.
- In his congressional testimony, Walsh positioned five key topics: hawkish on inflation and monetary policy, neutral on independence and reform, and only dovish on AI.
- The market prices the July FOMC as holding steady, shifting the rate hike focus to September (around 60% probability), with an implied probability of approximately 80% for "zero rate cuts" in 2026.
- Oil prices climbing back above $80, combined with Walsh's hawkish remarks, led the market to quickly retract the previously warming rate cut expectations.
- The core view holds that softer CPI meeting a hawkish chair results in "cooling does not equal rate cuts," and attention needs to focus on the July 30th PCE data and mega-cap earnings.
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Today's Observation:
Newly appointed Fed Chair Kevin Warsh has attended congressional hearings for two consecutive days. Despite a surprise sharp cooldown in the June CPI early that morning, he set a distinctly hawkish tone, showing "zero tolerance" for inflation, downplaying single-month data, and abandoning forward guidance. Combined with oil prices rising back above $80, the market quickly retracted the previously heightened expectations for rate cuts.
Data in One Minute:
• June CPI fell to 3.5% year-over-year (previous: 4.2%), with core CPI at 2.6%, both below expectations but still above the 2% target
• Warsh's stance on five key issues: Inflation and monetary policy are hawkish, independence and reform are neutral, only AI is dovish
• July 28-29 FOMC meeting: Market bets on "holding steady," with rate hike focus shifting to September (approximately 60% probability)
• Implied probability of "zero rate cuts" in 2026 stands at about 80%
MSX View:
We believe that a softer CPI paired with a hawkish new chair results in a "cooldown, not a rate cut." Warsh wants to see inflation truly return to target rather than pivoting based on one or two months of good data, further reinforcing the "higher for longer"基调. For US stocks, this puts short-term pressure on high-valuation growth stocks, but strong earnings could still provide support. The real watershed moment will be the July 30 Core PCE report and the subsequent mega-cap earnings: the "second episode" of policy will be written by the data.
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Risk Disclaimer: Both the macroeconomy and the US stock market are highly volatile. This content is solely for academic and research observation purposes by the MSX Research Institute and does not constitute any investment advice.
