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Waller's new policy measures are in the works! How should investors respond?
高腾国际
joined discussion · May 18 14:35

Goldman Sachs Weekly Interest Rate Analysis: The Era of Walsh Begins! Is There Little Room Left for Rate Cuts?

Issue 202609
Issue No. 202609 In our last column, we analyzed how the breakdown of US-Iran peace talks and stronger-than-expected non-farm payroll data shifted policy expectations from 'interest rate cutgame' to 'Interest rate hikerisk.' In this issue, we will further analyze the evolution of the policy landscape on the eve of the start of the Walsh era. ▌FedWatch Data Quick View According toCME FedWatch data, with FOMCmeeting still31 days days until the next rate decision, maintaining interest rates3.50%-3.75%The probability remains at99.1%，interest rate cutto3.25%-3.50%Probability only0.9%. Compared to a week ago (93.4%), the expectation of no change has significantly increased, and compared to a month ago (93.9%), it has also risen by more than 5 percentage points.interest rate cutThe narrowing of expectations is due to the dual pressures of stronger-than-expected non-farm payroll data and oil price shocks. ▌ Collective reset of institutions' rate cut expectations Last week,Goldman Sachs、UBS Group、Bank of AmericaThree major institutions simultaneously postponedinterest rate cutexpectations,Goldman Sachsfrom September to December,UBS GroupSimilarly, Bank of America has directly postponed to July 2027. This consistency indicates that the market's confidence in the short terminterest rate cutis systematically waning.CITIC SecuritiesIt is believed that subsequent developmentsinterest rate cutmust be premised on a easing of tensions, with conditions becoming stricter than before. ▌ The intersection of leadership transition and Middle East tensions Wash passed aMay 11key vote in theSenatewith Milan announcing his resignation on Wash’s inauguration day. Uncertainty over the successor and their policy stance has made judgment on interest rate paths more cautious. In the Middle East, Iran announced it will no longer allow enemy military equipment to pass through.Strait of Hormuz，...
In the previous column, we analyzed the shift in policy expectations from 'gaming' to 'risk' amid the collapse of US-Iran peace talks and stronger-than-expected nonfarm payroll data. interest rate cutFrom "game theory" to "Interest rate hikeIn this issue, we will further analyze the evolution of the policy landscape on the eve of the Volcker era.
▌FedWatch Data Quick View
According toCME FedWatch data, with the nextFOMCmeeting still31 days, maintaining interest rates3.50%-3.75%unchanged at a probability of99.1%，interest rate cutto3.25%-3.50%with only a probability of0.9%. Compared to a week ago (93.4%), the unchanged expectation has risen significantly, and compared to a month ago (93.9%), it has also increased by more than 5 percentage points.interest rate cutThe narrowing of expectations is due to the dual pressures of higher-than-expected non-farm payroll data and oil price shocks.
▌ Collective reset of institutional rate cut expectations
Last week,Goldman Sachs、UBS Group、Bank of AmericaThree major institutions have simultaneously postponedinterest rate cutexpectations,Goldman Sachsfrom September to December,UBS Groupsimilarly, Bank of America has directly postponed it to July 2027. This consistency indicates that market confidence in short-terminterest rate cuthas systematically waned.CITIC SecuritiesBelieve subsequentinterest rate cutrequires a premise of easing tensions, with conditions stricter than before.
▌ The intersection of leadership transition and Middle East developments
Wash atMay 11passed throughthe Senatea key vote; Milan announced he would resign on Wash’s inauguration day. Uncertainty surrounding the successor's identity and policy stance has made the interest rate path more cautious.
Regarding the Middle East, Iran announced it will no longer allow enemy military equipment to pass throughStrait of Hormuz, with the US responding that it will reopen at the latest by this summer. The earliest possible resumption of military action by the US could be next week, continuing supply risks.WTI Crude OilReceive$105,224，Brent crude oilReceive$106.12, both holding steady$100.BarclaysPointed out that persistently high oil prices will continue to drive up inflationInflationexpectations.
▌ Division within the Fed: Hawkish voices gaining influence
【Dovish] Milan advocates that lowering interest rates is an appropriate move; Williams stated there is no need in the short termInterest rate hike necessity, no signs ofInflationspillover effects.
【Hawkish] Collins clearly stated that ifInflationthe situation does not ease, further action will be neededInterest rate hike; Kashkari reiteratedInflationStill too high; Schmid pointed outInflationis the most pressing risk.
【Centrists】Barr has not yet decidedJuneAction, considering weak employment growth but no recession.
▌ Other major central bank activities
People's Bank of China: Daily 500 million yuan reverse repo, interest rate1.40%unchanged. AprilAggregate financing 15.45 trillion yuan，M2Year-on-year increase8.6%。
European Central Bank：NagelandKazaksOn average, if oil prices riseInflation，JunePossibleInterest rate hike。
Bank of England: Traders have priced in three rate hikes within the year25 basis points interest rate hike。
Bank of Japan: Several members believe maintaining interest rates0.75%is appropriate, with long-term householdInflationexpectations rising to a 20-year high.
▌ Market Reaction: Strengthening dollar pressures gold
$Gold Futures (AUG6) (GCmain.US)$ Sharp decline3.81%to4,543.6 USD, affected by $USD (USDindex.FX)$ Rebound1.44%and$U.S. 10-Year Treasury Notes Yield (US10Y.BD)$ Rise5.54%to4.595%dual pressures. Safe-haven support strengthens the US dollar but simultaneously suppresses Gold, with negative correlation mechanisms taking control again.
Crude oilSurging strongly, $Crude Oil Futures (AUG6) (CLmain.US)$ Weekly gain of 6.84%， $Brent Last Day Financial Futures Current Contract (AUG6) (BZcurrent.US)$ Weekly gain of 8.71%, surpassing$100level. The deadlock in the Middle East remains a core driver for rising oil prices.
US stocks fluctuating at high levels, $S&P 500 Index (.SPX.US)$ Slight increase0.13%， $Nasdaq Composite Index (.IXIC.US)$ Slight decline0.08%， $Dow Jones Industrial Average (.DJI.US)$ Down0.17%Lack of directional breakthrough amid expectations of tighter interest rates.
▌ Historical Perspective: Policy Uncertainty Before and After Leadership Transition
Reviewing history, leadership transitions at the Fed have often been accompanied by heightened policy uncertainty.In 2018, Powellcontinued in the short term after taking office,Interest rate hikewith markets experiencing significant expectation volatility before and after the transition. The new chairman, Kevin Warsh, had previously criticized quantitative easing policies and favored tightening monetary policy earlier and faster, with the medium to long-term direction gradually reflecting his personal stance.
▌ Closing Remarks
This issue analyzes from three dimensions—resetting institutional expectations, leadership transition dynamics, and Middle East premium—the logic behind narrowing paths.interest rate cutDifferent from the previous issue, the core contradiction has now shifted to“The systematic postponement of the rate-cut timeline”— Institutional consensus postponed, HawkishIncreased influence, no signs of easing in the Middle East. Investors should closely watch Wash's first statement after taking office and June FOMCthe final batch beforeInflationdata.
Issue No. 202609 In our last column, we analyzed how the breakdown of US-Iran peace talks and stronger-than-expected non-farm payroll data shifted policy expectations from 'interest rate cutgame' to 'Interest rate hikerisk.' In this issue, we will further analyze the evolution of the policy landscape on the eve of the start of the Walsh era. ▌FedWatch Data Quick View According toCME FedWatch data, with FOMCmeeting still31 days days until the next rate decision, maintaining interest rates3.50%-3.75%The probability remains at99.1%，interest rate cutto3.25%-3.50%Probability only0.9%. Compared to a week ago (93.4%), the expectation of no change has significantly increased, and compared to a month ago (93.9%), it has also risen by more than 5 percentage points.interest rate cutThe narrowing of expectations is due to the dual pressures of stronger-than-expected non-farm payroll data and oil price shocks. ▌ Collective reset of institutions' rate cut expectations Last week,Goldman Sachs、UBS Group、Bank of AmericaThree major institutions simultaneously postponedinterest rate cutexpectations,Goldman Sachsfrom September to December,UBS GroupSimilarly, Bank of America has directly postponed to July 2027. This consistency indicates that the market's confidence in the short terminterest rate cutis systematically waning.CITIC SecuritiesIt is believed that subsequent developmentsinterest rate cutmust be premised on a easing of tensions, with conditions becoming stricter than before. ▌ The intersection of leadership transition and Middle East tensions Wash passed aMay 11key vote in theSenatewith Milan announcing his resignation on Wash’s inauguration day. Uncertainty over the successor and their policy stance has made judgment on interest rate paths more cautious. In the Middle East, Iran announced it will no longer allow enemy military equipment to pass through.Strait of Hormuz，...
$Hang Seng Index (800000.HK)$ $Hang Seng TECH Index (800700.HK)$
Risk Disclaimer: The above content only represents the author's view. It does not represent any position or investment advice of Futu. Futu makes no representation or warranty.Read more
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