Agency: Walsh attempted to “outsource” some of the austerity functions, or to induce market pricing too late for Fed operations

on 30 july, cgi reported that the july meeting of the federal reserve had maintained interest rates, but that internal hawk forces had been further strengthened and the three voting committees had voted in favour of an increase of 25 basis points. we believe that the biggest change in this meeting is not the interest rate resolution, but rather the walsh's attempt to reduce policy intervention, rely more on spontaneous increases in market interest rates to tighten financial conditions and “outsourcing” some of the austerity functions to markets. however, against the backdrop of continued higher-than-target inflation, such an approach could easily weaken market confidence in the credibility of the fed ' s policy. following the conference, long-term us debt yields rose significantly, with a clear steep curve or a reflection of the long-term inflation and policy risks that investors are starting to price higher. looking ahead, we believe that if employment or inflation data exceed expectations, the market will not only further increase the september interest rate hike expectations, but may also price the fed's risk of “too late”. long-end interest rates go further and risk assets will also face greater adjustment pressure. kim xian