Gaozhan Weekly Rate Analysis | Hawkish Dot Plot Meets U.S.-Iran Deal: Can Rate Hike Expectations Coexist with Falling Oil Prices?

Issue No. 202614

In the previous column, we analyzed the macro turning point characterized by CPI exceeding 4% alongside a sharp drop in oil prices. Building on that, this issue will further exploreThe Fed's dot plot turns hawkishshift andthe U.S.-Iran dealthe subsequent policy path after implementation.

Last week,within,The Federal ReserveThe June interest rate decision kept rates unchanged3.50%-3.75%Meanwhile, the U.S.-Iran Memorandum of Understanding was officially signed,the Strait of Hormuzhas resumed navigation.Inflation resilienceandand supply-side recoveryare two opposing forces that have led to this"hawkish policy shift + geopolitical easing"outcome.

▌FedWatch Data Quick View

CME FedWatchData shows that maintaining rates3.50%-3.75%Probability is57.2%, down significantly from89.3%a sharp decline compared to a week ago.Interest rate hiketo3.75%-4.00%The probability has risen to42.8%, up from8.3%surging by approximately34 percentage points. A month ago, the probability was only14.4%。

CMEbelievesthe dot plot is hawkishSignals are pulling in opposite directions against Middle East de-escalation,Interest rate hikeExpectations are heating up rapidly.

▌ Fed’s June decision: Hawkish pivot but no rate hike commitment

Kevin WarshThe debut featuredan 'ultra-brief statement'carrying forwardInterest rates unchanged, removing dovish-leaning language.the dot plotshowing that 9 out of 18 officials supportInterest rate hike, with one even backingInterest rate hikea 75-basis-point hike. The 2026 GDP growth forecast was revised down to2.2%, PCEinflationforecast revised upward to3.6%。Huatai Securitiesexpects DecemberInterest rate hikeprobability close to 50%.

▌ Yield curve steepening: short end pricing in rate hikes, long end pricing in recession

Last week, U.S. Treasuriescurve showed a typicalbear steepeningshape. $U.S. 1-Year Treasury Bills Yield (US12M.BD)$ surged4.50%to4.032%， $U.S. 3-Year Treasury Notes Yield (US3Y.BD)$ Rise1.42%， $U.S. 5-Year Treasury Notes Yield (US5Y.BD)$ Rise0.68%. Meanwhile, $U.S. 10-Year Treasury Notes Yield (US10Y.BD)$ Down0.57%to4.461%， $U.S. 30-Year Treasury Bonds Yield (US30Y.BD)$ Down1.41%to4.902%。

The short end reflectsInterest rate hikeExpected rate hikes are rising, while long-end yields imply growing concerns over economic slowdown. The narrowing inversion of the 2s10s yield spread suggests a widening divergence between the policy path and growth expectations.

▌ Internal divergence: Hawkish faction expands, but Chair remains cautious

Hawkish：the dot plotAmong them, nine officials support within the yearInterest rate hike，Citadel Securitieswith expected windows in September, December, and March 2027Interest rate hikewindow,PGIMand even forecasts threeInterest rate hiketimes within the year.

Dovish：Russell Investmentsnoted institutions generally expectThe Federal Reserveno further movesInterest rate hike, believing the economy is resilient enough to warrant a wait-and-see stance.

Centrists：CITIC SecuritiesAssessmentKevin WarshI will not support it within this year.Interest rate hike，FOMCwill ultimately converge toward the chair's position.CICCmaintain no rate cut within the yearInterest rate hikeexpectation of no rate cut.

▌ Other major central bank activities

Bank of Japan：Interest rate hike25 basis points to1.00%, reaching a 31-year high.Ryozo Himino, Deputy Governor of the Bank of Japanhinted that it will continueInterest rate hike, and downward pressure on the yen persists.

Bank of England: Maintain3.75%unchanged; two committee members called forInterest rate hiketo4%。JPMorganNovember expectedInterest rate hike。ECB Chief Economist Philip Lanesaid the upper bound of the neutral rate has risen to2.5%。

People's Bank of China：Pan Gongsheng, Governor of the People's Bank of Chinaannounced the creation ofthe FIMA RMB repo facility, and conductedRMB 600 billion in outright reverse repos。

▌ Historical Perspective: Reliability of the Dot Plot Signal

Year 2023the dot plotShown multiple times previouslyInterest rate hikeExpected, but actual full-year figure was onlyInterest rate hikeonce.the dot plotThis reflects the current hawkish-dovish distribution more than future policy commitments; market interpretation requires caution.

▌ Scenario Analysis

*Scenario 1 (Oil prices continue to decline)

Easing supply drivesinflationa cooldown,The Federal ReserveHoldInterest rates unchanged，Interest rate hikereversal of expectations,US Treasury bondsand short-end yields retreat.

*Scenario 2 (Oil prices rebound)

Tensions in the Middle East are flaring up again,inflationa second round of escalation is expected,Interest rate hikeas expectations materialize, both the US dollar and short-end rates rise in tandem.

current pricing leans toward Scenario One, but Israel andHezbollah ceasefirevulnerabilities cannot be ignored.

▌ Market reaction: Stronger dollar coexists with a sharp drop in oil prices

last week $USD (USDindex.FX)$ Rise0.97%to100.765, supported by both safe-haven demand andInterest rate hikeexpectations.

$Crude Oil Futures (SEP6) (CLmain.US)$ Plummet10.40%to$75.52， $Brent Last Day Financial Futures (DEC6) (BZmain.US)$ Down8.38%to$79.44, reflectingthe U.S.-Iran agreementsupply recovery after implementation.

$Gold Futures (AUG6) (GCmain.US)$ Slight decline0.28%to$4,227.9, spiked intraday to$4,403.6before pulling back, as safe-haven premiums and interest rate expectations tug against each other.

The combination of a stronger dollar and a sharp drop in oil prices is pricing inInterest rate hikeDual drivers of anticipated rate hikes and geopolitical easing.

Summary and Outlook

Last week,The key signal lies ina hawkish dot plotshifting alongsidethe U.S.-Iran agreementmaterializing simultaneously. Short-end rate pricingInterest rate hike, while long-end pricing reflects recession risk,steepening the yield curvefurther intensifying. Investors should closely monitor the JulyFOMCFOMC minutes and May PCE data—these two events will testInterest rate hikeCredibility of expectations. Middle EastCeasefireExecution progress is equally critical.

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