Federal Reserve Stays on Hold

Even as the Middle East conflict pushed oil prices higher and revived inflation risk, the Federal Reserve left the federal funds rate unchanged at 3.50%–3.75% for a fifth consecutive meeting. Core PCE edged down to 3.3% in June but remains well above the 2% target, indicating that inflation is not yet under control. Chair Kevin Warsh offered no clear guidance on the path back to target, and the market's confidence in the Fed's anti-inflation resolve softened at the margin — directly triggering a sell-off at the long end, which lifted the 30-year Treasury yield 24 basis points to 5.21%, its highest level since 2007. Three Committee members dissented in favor of a 25-basis-point hike — the first time since September 2016 that three votes have gone the same way — laying bare the internal divide over the pace of policy. On balance, controlling inflation remains the Fed's overriding priority, and the timing and scale of any future tightening will hinge on the incoming data.

US Growth Slows, but Domestic Momentum Stays Resilient

Real GDP growth slowed to an annualized 1.5% in the second quarter from 2.1% in the first, with the softening driven mainly by a drag from net exports. With Section 301 forced-labor tariffs of 10%–12.5% taking effect on 24 July, firms front-loaded imports ahead of implementation — a temporary distortion rather than a sign of weakening domestic demand. On the consumer side, spending rebounded to 2.1%, supported by World Cup-related outlays, while corporate AI capital expenditure continued to expand; together with a fall in the June unemployment rate to 4.2%, this points to continued resilience in both the labor market and underlying demand. That said, once the World Cup boost fades, the path of consumer spending in the second half of the year bears watching, and uncertainty remains.

Australian Inflation Falls More Than Expected as Tightening Begins to Bite

Australia's headline CPI eased to 3.8% year-on-year in June from 4.0% in May, but non-tradables inflation rose to 4.9%, showing that domestic price pressures remain sticky. Real GDP growth slowed to 0.3% quarter-on-quarter in the first quarter from 0.9%, led by private investment, while discretionary consumption fell 0.1% on the quarter — a reflection of more cautious household spending under the weight of high rates and cost pressures. Tighter policy is steering the economy toward a more balanced footing. With inflation still above the 2%–3% target band, we expect the RBA to hold rates in the near term and retain a hawkish bias.

Australian Housing: Correction Concentrated at the Top End, Systemic Risk Contained

National dwelling values fell 0.7% in July, with the adjustment concentrated in higher-priced homes. Over the three months to July, values in the top price quartile fell 3.2%, while the bottom quartile — entry-level, owner-occupier homes — rose 0.3%, evidence of continued resilience. Borrowers' risk buffers are ample: the average loan-to-value ratio on Australian mortgages is around 80%, meaning most buyers hold an equity cushion of roughly 20%. Even with the recent softening, fewer than 1% of borrowers are in negative equity — where the property is worth less than the outstanding loan — leaving systemic risk contained.