ICBC Asia: Weak Macro Data Supports the Fed Remaining on Hold
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Key Views
- Three dissents show resolve to contain inflation, while the Chair's "deliberate ambiguity" let markets push long-end yields higher, partly replacing central-bank tightening.
- June CPI and PCE posted their first monthly declines since 2020; AI investment supports manufacturing but raises chip prices, turning computers-and-peripherals CPI positive.
- Dollar liquidity is tight: near-depleted overnight reverse repos and bank reserves near their floor make large balance-sheet runoff unlikely this year.
Outlook
The dollar index, after briefly breaking below 100, should stay firm but range-bound with limited upside. Treasuries remain a "buy short, sell long" trade: the 30-year yield has exceeded 5.20%, a near 19-year high, and may spike further episodically. US equities lack a broad-reversal basis amid high valuations; global funds will keep rotating across regions and sectors. The Fed may hold rates unchanged all year; watch Warsh's policy-framework remarks at Jackson Hole in August.
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