--- title: "CICC: It is expected that Waller will reiterate inflation risks and retain the option to raise interest rates to rebuild credibility" type: "News" locale: "en" url: "https://longbridge.com/en/news/296841003.md" description: "CICC released a research report stating that Federal Reserve Chairman Waller is expected to reiterate inflation risks and retain the option for interest rate hikes to rebuild policy credibility in his speech at the Jackson Hole meeting. Although Waller has not abandoned the idea of \"balance sheet reduction + interest rate cuts,\" there is a misalignment between its premise and reality. If policy flexibility is demonstrated, concerns about U.S. Treasuries may ease, and the dollar will be supported; conversely, if trust is lost, long-term U.S. Treasury yields will rise, and the dollar will be under pressure" datetime: "2026-08-25T00:39:02.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/296841003.md) - [en](https://longbridge.com/en/news/296841003.md) - [zh-HK](https://longbridge.com/zh-HK/news/296841003.md) generator: "portal-rs" --- # CICC: It is expected that Waller will reiterate inflation risks and retain the option to raise interest rates to rebuild credibility According to the Zhitong Finance APP, China International Capital Corporation (CICC) released a research report stating that the focus of the market this week is the Jackson Hole meeting and the speech by Eric Wu. Previously, Eric Wu's statement of "letting the market raise interest rates for the Federal Reserve" failed to alleviate inflation concerns. Coupled with the ineffectiveness of Treasury intervention, the credibility of policies has been damaged, and U.S. Treasury yields continue to rise. It is expected that Eric Wu will reiterate inflation risks and retain the option of raising interest rates to rebuild credibility, but he will also continue to insist on reducing central bank intervention and lowering communication frequency as long-term propositions. CICC believes that Eric Wu has not abandoned the policy concept of "balance sheet reduction + interest rate cuts," but the premise on which it was established is misaligned with the current reality, requiring coordination and clearer expression. If Eric Wu can demonstrate sufficient policy flexibility, market concerns about U.S. Treasuries are expected to ease somewhat, supporting the U.S. dollar; conversely, if trust continues to erode, long-term U.S. Treasury yields will continue to rise, putting pressure on the dollar. ## CICC's main points are as follows: This week, the global market's focus is undoubtedly on the Jackson Hole central bank governors' annual meeting, especially the speech by Federal Reserve Chairman Eric Wu on Friday. This meeting is particularly noteworthy because, over the past month, the credibility of both U.S. monetary and fiscal policies has been questioned by the market, and investors are eager to hear clearer policy signals from Eric Wu. Looking back at the July FOMC meeting, the Federal Reserve chose to keep interest rates unchanged, and Eric Wu suggested "letting the market raise interest rates for the Federal Reserve" during the press conference. CICC pointed out in a previous report that against the backdrop of U.S. inflation being above the 2% target for five consecutive years, this statement not only failed to quell market concerns about inflation but also raised worries about the Federal Reserve's determination to combat inflation, which could exacerbate volatility in the bond market and spill over into the stock market. Subsequent market trends confirmed this judgment: entering August, U.S. Treasury yields continued to rise, the term premium for 10-year U.S. Treasuries significantly increased, and the yield curve steepened (Chart 1). Indeed, the rise in term premiums is driven by multiple factors—geopolitical tensions in the Middle East pushing up oil prices, a surge in bond issuance by AI-related companies, and concerns over U.S. government debt pressure—but Eric Wu's previous failure to gain market trust is also an important factor that cannot be ignored. After yields rose, the Treasury Department immediately announced an expansion of the bond repurchase program in an attempt to intervene. On that day, the yield on 30-year U.S. Treasuries fell by about 10 basis points, but the next day, yields rose again. Subsequently, the U.S. August S&P PMI data hit a four-year high, coupled with rising oil prices, further pushing yields higher, completely offsetting the effects of the Treasury's intervention. The market generally believes that this intervention not only had no substantive effect but may have further damaged the credibility of policies. In this context, Eric Wu's speech on Friday is crucial. In CICC's view, his most important task this time is to **send clear signals to the market and rebuild the credibility of the Federal Reserve.** To achieve this, he may need to convey several messages: first, reiterate that inflation risks have not been eliminated; second, emphasize that interest rate tools remain the core means to address inflation; third, indicate that if inflation data is excessively high, the Federal Reserve will tighten policies further It should be noted that these statements do **not equate to a pre-announcement of interest rate hikes**, but rather reflect an attitude of "not rejecting rate hikes," which is not forward guidance but rather provides an "option." In fact, this is precisely the attitude that the current bond market most wants to see—when inflation risks rise again, the Federal Reserve is willing to act. This attitude generally aligns with the current stance of most officials within the Federal Reserve. The latest disclosed minutes from the July FOMC meeting show that several officials advocated for a rate hike in July, while more officials believe that if inflation cannot sustainably decline, further tightening of monetary policy will be necessary in the future. This indicates a strong consensus within the Federal Reserve to maintain a relatively tight monetary policy, and as the chair, Waller has the responsibility to clearly communicate this consensus. At the same time, CICC expects Waller to continue to adhere to his consistent policy philosophy, advocating for reduced intervention by the Federal Reserve in the market. For example, he may provide theoretical justification for abolishing forward guidance and reducing the frequency of communication, laying the groundwork for future cancellation of the dot plot and reducing the FOMC meetings from eight times a year to six; he may also continue to insist on the direction of balance sheet reduction, delineating the boundaries between monetary and fiscal policy, and emphasizing the impact of AI on economic structure and statistical data, arguing that monetary policy should adapt to the new macro and technological environment. In CICC's view, **Waller's policy philosophy of "balance sheet reduction + interest rate cuts" itself has not wavered, but the premise of this philosophy is misaligned with the current reality.** Waller's logic is based on the judgment that AI can enhance productivity and thus lower inflation. In the long term, this judgment may not be wrong, but the issue is that the transformation of AI investment into productivity takes time, while the inflationary pressures from current capital expenditure expansion and rising oil prices are occurring now. There is a clear time lag between ideals and reality. Therefore, what truly tests Waller this week is whether he can maintain his long-term philosophy while having enough flexibility regarding short-term realities, and clearly articulate this misalignment between long-term and short-term. CICC believes that if Waller can demonstrate this flexibility, market trust in the Federal Reserve will strengthen: the 2-year U.S. Treasury yield may briefly rise, but the 10 to 30-year yields are expected to decline, leading to a flattening of the yield curve. The stock market may experience a short-term pullback, but will benefit in the medium term, with the policy uncertainty premium expected to decrease. The U.S. dollar is likely to gain support, while gold may come under pressure. Conversely, if Waller chooses to ignore short-term issues and stubbornly adheres to his long-term views, market skepticism towards the Federal Reserve will deepen, and the logic of the "Debasement trade" may continue. At that time, the 10 to 30-year U.S. Treasury yields may continue to rise, the credibility of the U.S. dollar will suffer greater losses, and gold may continue to rise ### Related Stocks - [601995.CN](https://longbridge.com/en/quote/601995.CN.md) - [03908.HK](https://longbridge.com/en/quote/03908.HK.md) ## Related News & Research - [The joy of markets: Wall Street bathes in the light, but darkness is creeping in](https://longbridge.com/en/news/295960677.md) - [ITECH: Record Q2 sales and profit growth, with strong margins and cash flow supporting future growth](https://longbridge.com/en/news/296573685.md) - [Desert Control issued shares rise to 407,935,164 after capital increase registration](https://longbridge.com/en/news/296688306.md) - [GMG Launches New Graphene Water Coolant Additive for Data Centres: G FLUID(TM)](https://longbridge.com/en/news/296785771.md) - [Vimab affiliate VIM Energy Systems wins SEK 16 million Kosovo battery park contract](https://longbridge.com/en/news/296765756.md) --- > **Disclaimer: This article is for reference only and does not constitute any investment advice.**