Institution: We maintain the baseline view that the Federal Reserve will not raise rates within the year, but the threshold for rate hikes has already fallen

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Golden Finance reported that on July 15, a report from CITIC Securities Research said that the U.S. June CPI on a seasonally adjusted month-over-month basis fell by 0.4%, while the year-over-year increase eased to 3.5%; core CPI was flat month-over-month and rose 2.6% year-over-year, both falling below market expectations. A drop in energy prices is the main reason inflation has cooled. Looking ahead, renewed escalation in the U.S.-Iran situation could create a back-and-forth pattern in the outlook for energy inflation. At the same time, the AI inflation effect is gradually becoming apparent: upstream hardware supply-demand mismatches, price increases in software and related products, and AI-driven capital expenditures boosting total demand could all make core inflation more sticky.
For policy, the cooling of June inflation supports the Federal Reserve holding rates unchanged at its July meeting, but Waller’s recent remarks indicate that[1] the Fed is reappraising the possibility of “preventive rate hikes.” We maintain our baseline view that there will be no rate hikes within the year, but note that the threshold for rate hikes has already been lowered. If 1-2 overheated inflation data points appear, it could prompt the Federal Reserve to further discuss rate-hike options. (Jinshi)
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