Wisdom Wealth APP learned that GF Securities released a research report stating that the July FOMC statement added concerns about the cooling of the employment market and diluted the description of inflation risks. Powell's attitude is dovish: he believes that the economy is close to the time for rate cuts, and if the data allows it, the Fed may cut rates as early as September. In addition, he stated that the timing and pace of interest rate cuts will still follow the "data dependency" rule, but clearly states that the Fed's monetary policy decision is independent of the election results. In terms of the market, the Fed's decision not to cut interest rates in July met market expectations; the dilution of inflation risks and the emphasis on employment risk further priced in interest rate cuts in the market.

Firstly, at the FOMC meeting in July 2024, all FOMC officials unanimously voted to maintain the federal funds rate target range at 5.25%-5.5%, which is in line with the market's mainstream expectations. This is the ninth time the Fed has paused raising interest rates since raising them in July 2023.

Secondly, the July FOMC statement added concerns about the cooling of the employment market and diluted the description of inflation risks. Firstly, the new wording in the statement says, "the committee will focus on the dual risks of employment and inflation," which is noticeably different from the statement in June, which says, "the committee is highly concerned about inflation risks." The description of the employment market changed from "remained strong" to "have moderated." Secondly, the Fed acknowledged the process of the second quarter's fall in inflation, changing the description of inflation from "remains elevated" in June to "somewhat elevated."

Thirdly, Powell's attitude at this press conference is dovish. Firstly, Powell believes that the economy is close to the time for rate cuts, and if the data allows it, the Fed may cut rates as early as September (on the table as soon as the next meeting in September). Secondly, when asked why the Fed did not start cutting interest rates in July, Powell said that it was not quite at that point, but Powell admitted that some members had discussed whether to start cutting interest rates in July at this meeting, and eventually everyone agreed not to cut interest rates at this meeting. GF Securities believes that the recent weakness in employment data has led to a loosening of the Fed's adherence to "high for longer," which will lay the foundation for subsequent interest rate cuts.

Fourthly, looking to the future, Powell believes that the timing and pace of interest rate cuts will still follow the "data dependency" rule, but clearly states that the Fed's monetary policy decision is independent of the election results. Firstly, Powell said he did not want to see a further weakening of the job market (material further colling), so rate cuts are the benchmark scenario. Secondly, Powell did not give specific guidance on the timing and pace of interest rate cuts, saying that these judgments will still be based on economic data. It is worth noting that Powell emphasized that interest rate cuts will be "data dependent" rather than "data-point dependent," and GF Securities understands that even if inflation data rebound slightly in stages in the future, it may not impose significant restrictions on the Fed's interest rate cuts. However, Powell ruled out a 50bp interest rate cut by the Fed at one time. Thirdly, Powell clearly stated that monetary policy decisions are independent of election results (a line never cross), and GF Securities understands that this should be a response to the previous market's concerns about the impact of Trump's rise on inflation rebound affecting Fed interest rate cut decisions this year.

Fifthly, in the mid-term overseas macro report, Trade Halfway, GF Securities once emphasized the logic of the Fed's decision-making at the current stage: "The Fed needs to weigh two risks: one is whether the stimulus effects of the fiscal policy will lead to a temporary rebound in inflation (from GF Securities calculations, it seems that this will not happen in 2024); the other is whether the loosening of the job market is controllable in terms of pace (the cushion is running out). Combining these views, a preventive rate cut may be the most likely result for the Fed under its data-dependent framework."

Sixthly, Powell's attitude and the content of the statement are generally in line with expectations. The Fed's focus has shifted noticeably from inflation to employment, against the background of the main inflation indicators falling smoothly in the previous period, but the employment data showing sustained cooling. The second quarter's employment cost index (ECI) was announced on the same day, rising by 0.9% month-on-month, lower than expected 1% and the previous value of 1.2%; the vacancy report previously released shows that the ratio of vacancy to unemployment (V/U) fell from 1.24 to 1.21, which is even lower than before the outbreak. The recent decline in the employment rate also shows that corporate hiring demand has slowed. If still left to the market to develop, it may contribute to an increase in the unemployment rate. For the Fed, the current mild cooling of the employment market is still acceptable, but if it continues to weaken, it may pose greater risks. This is also why Powell mentioned at the press conference that "the downside risks to the job market are substantial," reflecting that the Fed's interest rate cut policy in response to future employment weaknesses needs to be more flexible. Based on judgments of inflation and the job market, GF Securities maintains that the Fed will cut interest rates by 25bp in September and December this year.

Seventh, in summary, the Fed's decision to not cut interest rates in July was in line with market expectations. At the same time, Powell's dovish tone and emphasis on the risks to employment balanced against the weakening inflation risks resulted in further pricing of rate cuts in the market. After the meeting, CME Fed Watch showed that the market expects an 89% probability of a rate cut in September, up from the previous value of 86%. In addition, the expectation of a rate cut in November also rebounded from 57.5% to 63.2%. After the release of the resolution, the 10-year US Treasury yield fell 3bp to 4.10%. The logic for the interest differential caused the US dollar index to weaken to 104.09. The three major stock indexes rose, and the Bloomberg Global Commodity Index rose by 1.07%. For non-US assets, GF Securities understands that trading related to rate cuts (global liquidity inflows to emerging markets) will pick up temporarily when US economic data fluctuate or inflation expectations decrease.