Bitunix Analyst: Rate Hike or Not, Neither is the Endpoint, Market Trades Powell's Policy Function

July 29th. On the eve of the Fed interest rate decision, the market is no longer facing just a binary choice between rate hikes or standing pat, but rather a change in the monetary policy decision-making mode. Powell has continued to downplay forward guidance, causing the market to lose its reliance on officials' speeches to anticipate policy, and Wall Street can only seek answers through probability trades and hedging positions, which is also why open interest in Fed funds futures contracts recently hit a new high and hedging demand against rate hikes has simultaneously increased. Even though most institutions still expect this time to keep rates unchanged, what will truly influence market volatility is how Powell defines inflation risks, whether he accepts the short-term impact of energy prices, and whether he establishes a new policy framework through post-meeting speeches. In other words, the core of this FOMC meeting is not the rate decision, but whether the market can gradually understand Powell's future reaction function, as this will directly affect the global reshaping of the risk premium on dollar assets.

At the corporate level, a shift in capital allocation strategy is also evident. Amazon chose to streamline internal AI models, focusing resources on cutting-edge model research, reflecting that AI competition has shifted from "model quantity" to "model quality and resource concentration." This means that large tech companies are beginning to pay more attention to capital efficiency rather than unrestricted expansion of R&D. The market's focus is gradually shifting to investment return rates and cash flow efficiency, and the valuation logic of high-flying tech stocks may also undergo changes.

On the other hand, the Middle East situation remains highly sensitive. Although the U.S. and Iran continue to seek diplomatic solutions through third parties such as Oman, signals of cooperation were also released after Trump's meeting with Netanyahu. Yet, Iran's missile strike on a U.S. military base, Houthi attacks on a Saudi oil tanker, and the dispute over control of the Strait of Hormuz all indicate that the conflict still has a high degree of volatility. The market has not fully priced in the worst-case scenario, so each military confrontation could once again raise the geopolitical risk premium, further impacting inflation expectations and the Fed's policy space. OPEC+ signaling to maintain stable production levels until 2026 after September also implies that the supply side will not increase significantly in the short term. If Middle East supplies are disrupted again, oil prices will be more susceptible to event-driven volatility.

Of note, the South Korean KOSPI index has retraced significantly by over 30% from its June high, showing that the Asian market has taken the lead in adjusting to high-flying tech stocks and the global liquidity environment, contrasting sharply with the still relatively high position of the U.S. stock market. If the Fed sends a more hawkish signal than the market expects, U.S. tech stocks may face similar valuation pressures as the Asian market. Conversely, if Powell keeps rates unchanged and continues his "data-dependent" stance, the market focus will quickly return to corporate earnings reports and the validation of AI capital expenditures.

In the short term, what global markets are truly awaiting is not a rate answer, but whether the policy framework, corporate earnings, and geopolitical landscape can collectively drive down the currently elevated risk premium.