Weakened Forward Guidance Fails to Soothe Markets, Fed Credibility Becomes Core to Risk Asset Pricing

On July 31, Chloe, a columnist for HTX DeepThink and a researcher at HTX Research, analyzed that global risk assets continued to be under pressure this week. Federal Reserve Chairman Kevin Warsh attempted to weaken forward guidance for the first time, hoping to make market prices a more direct feedback mechanism for the economy. However, the market did not interpret the rise in long-term interest rates as a natural tightening of financial conditions, but rather as a resurgence of inflation risks and a decline in the credibility of Fed policies. The yield on 30-year U.S. Treasuries rose to 5.2%, the dollar weakened, and U.S. stocks fell, reflecting that investors are beginning to demand higher risk premiums rather than betting on improvements in economic fundamentals.

The core contradiction in the current market has shifted from "whether to cut interest rates" to "whether the Fed still has the ability to control inflation." Although Warsh stated that the tightening of financial conditions in the market has partially replaced the need for rate hikes, he has maintained a vague stance on whether further rate hikes are necessary, leading the market to begin doubting the Fed's policy execution ability in a high-inflation environment. Meanwhile, the escalating situation between the U.S. and Iran has driven up energy prices, further strengthening inflation expectations and keeping the probabilities of rate hikes in September and December on the rise.

For U.S. stocks, the continued rise in long-term interest rates means that technology growth stocks still face valuation compression pressure. The core logic that drove the AI market rally in the past was based on low discount rates and high growth expectations, while the continuous rise in risk-free rates will increase the discount rate for future cash flows, putting pressure on high-valuation sectors. Therefore, before profit realization, AI, semiconductors, and high-beta tech stocks may still maintain high volatility.

The cryptocurrency market is also affected by macro liquidity. Although mainstream assets like BTC have not shown systemic risks, tightening dollar liquidity and rising real interest rates typically suppress risk appetite, with funds more inclined to flow into cash and short-duration assets. If the Fed ultimately chooses to rebuild policy credibility through rate hikes, the cryptocurrency market may continue to face valuation pressure in the short term; conversely, once inflation is brought back under control, risk assets may welcome a new round of liquidity recovery.

Overall, the focus of market trading is no longer on interest rates themselves, but on central bank credibility. In the coming weeks, inflation data, energy prices, and speeches from officials before the September FOMC will become key variables determining the direction of global risk assets.

This content is provided for general informational purposes only and doesn't constitute financial, investment, legal, or tax advice. Any events, rewards, online promotions, or related information mentioned herein should not be considered a recommendation, solicitation, or invitation to purchase, sell, trade, or otherwise deal in any crypto assets. Crypto assets are highly volatile and may result in loss. The availability of WEEX services, products, and related events may vary by region. You are responsible for ensuring that your participation is in accordance with applicable local laws and regulations.