BNP Paribas: Expects the Federal Reserve to raise interest rates three times starting in December

Last week, Federal Reserve Chair Kevin Warsh decided to hold interest rates steady, triggering sharp volatility in the bond market. A senior bond fund manager argued that the Fed’s “wait-and-see” approach actually delivered a stronger financial tightening effect than an actual rate hike via market reactions. Eric Hickman, founder of Lantern Capital, said that after the Fed’s interest rate decision and Warsh’s press conference, as of last Friday’s close, the combined market value of U.S. Treasuries, notes, and bills across all maturities had shrunk by roughly $115 billion. Hickman estimated that if the Fed had opted for a 25 basis point rate hike that week, with yields on bonds maturing in under five years rising by the same 25 basis points, the bond market would have lost around $65 billion in an extreme scenario—less than the losses from the actual volatility. He believes Warsh achieved a stronger tightening effect by not directly raising policy rates but instead letting the market reprice assets, while avoiding committing to keeping rates elevated for an extended period. Data shows that last Friday, the yield on the 30-year U.S. Treasury climbed to 5.229%, a nearly 19-year high; the 10-year U.S. Treasury yield rose to 4.688%, its highest level since January 2025. Hickman noted it remains unclear whether Warsh deliberately used market reactions to tighten policy, but Warsh has long advocated reducing forward guidance and letting the market digest economic information on its own—a philosophy clearly reflected in this policy move. However, internal divisions exist within the Fed. St. Louis Fed President Musalem stated that monetary policy responsibility lies with the FOMC, not financial markets, signaling concerns about the approach of “achieving policy effects through market adjustments.”

The Iranian Foreign Ministry announced that negotiations between Iran and Oman on shipping security in the Strait of Hormuz are still ongoing and have entered their "final stage." Driven by expectations of easing Middle East tensions, international oil prices fell on Monday: WTI crude dropped by more than 7% at one point, while Brent crude fell over 5% to around $83 per barrel. Iranian Foreign Ministry spokesperson Baghaei noted that the current talks are not direct negotiations with the U.S., but rather between Iran and Oman to ensure safe passage for vessels through the Strait of Hormuz, with the aim of finalizing a temporary shipping route as soon as possible. However, Iran emphasized that developments in the Strait of Hormuz are tied to U.S. military actions, and as long as such operations continue, there will be no major change to the Strait’s status. Previous reports indicated Iran and Oman are discussing reopening a "middle shipping lane," though the lane may have been mined, meaning mine-clearing operations will still be required to restore normal shipping. The Strait of Hormuz remains effectively closed at present, with only a small number of authorized vessels traveling along designated routes. U.S. President Donald Trump previously stated that an agreement to open the Strait of Hormuz could be imminent, adding that he had called off planned military strikes due to diplomatic efforts by Gulf countries. At the same time, he stressed that the U.S. is maintaining military pressure, and any deal must include the "full opening of the Strait of Hormuz" and a resolution to Iran’s nuclear issue. Gulf nations including Saudi Arabia, the United Arab Emirates (UAE), and Qatar have repeatedly called for de-escalation through diplomacy, warning that an escalation of conflict could lead to more attacks and disrupt regional energy and economic stability. Military threats between Iran and the U.S. have not been fully eliminated.

The European Commission has obtained new AI regulatory enforcement powers effective August 2, enabling it to conduct model assessments, restrict market access, and impose fines on companies developing general-purpose AI (GPAI) models, with U.S. AI firms including OpenAI, Anthropic, and Google as key targets. Under the implementation framework of the EU AI Act, the Commission can require companies to submit model assessments before their products enter the European market, and impose penalties for violations of up to €15 million or 3% of the company’s global annual revenue, whichever is greater. These new powers are viewed as a key measure for the EU to advance "tech sovereignty," and may further escalate tech regulatory frictions between Europe and the U.S. Earlier, the EU fined Google $1 billion under the Digital Markets Act (DMA), and former U.S. President Donald Trump once threatened to levy "massive" tariffs on the bloc. The EU AI Office noted that risks from advanced AI models are growing, necessitating strengthened oversight. Analysts point out that even if AI companies are headquartered in the U.S., they cannot evade EU regulation; non-EU AI service providers must also appoint an authorized representative within the EU to serve as a regulatory liaison. Recently, the EU has intensified communications with firms like OpenAI and Anthropic, focusing on security risks related to AI models. OpenAI confirmed it is cooperating with the EU AI Office. Tom Gordon, vice president of policy for OpenAI’s Europe, Middle East and Africa (EMEA), said the company will continue to collaborate with the European Commission and the industry ecosystem to promote the implementation of the AI Act while advancing the development of artificial intelligence in Europe.

Blockchain fintech firm Ripple has announced strategic investments in UK-based asset transfer agent Zilo and Financial Conduct Authority (FCA)-regulated tokenization solution provider Licuido, to advance the adoption of tokenized financial assets on the XRP Ledger (XRPL). Ripple stated that the investments aim to integrate regulated asset transfer agency, asset issuance, and collateral liquidity capabilities into the XRPL infrastructure, addressing idle collateral asset issues in traditional financial markets and enabling tokenized funds to be used as collateral from their launch. Zilo offers global transfer agency and asset solutions for wealth management firms, having raised around $58.7 million in total funding to date. Licuido specializes in institutional asset tokenization services. The specific investment amounts for both companies were not disclosed. This development follows shortly after Aviva Investors launched tokenized U.S. dollar liquidity fund shares on XRPL. Prior to this, Ripple also launched the Ripple Mint platform to help institutions issue, redeem, and manage its U.S. dollar stablecoin, Ripple USD (RLUSD). Data shows that the current tokenized real-world asset (RWA) size on XRPL is approximately $368 million, ranking 11th globally; Ethereum leads with $17.1 billion. Over the past 30 days, the number of RWA holders has risen by 50% to 1.57 million, while total tokenized asset value has increased by 1.5% to $37.3 billion.

New York Fed President John Williams said the Federal Reserve’s decision to hold interest rates steady in July aligns with current economic conditions: the labor market remains stable, economic growth is solid with no signs of overheating, justifying no immediate rate hikes. Williams noted that the impact of tariffs on U.S. inflation has mostly passed through and is unlikely to drive significant further inflation in the coming months. In the baseline scenario, inflationary pressures from energy prices and tariffs are near their peak, and factors that previously pushed inflation higher are expected to gradually ease. He stated that the Middle East conflict has lifted oil prices, but markets generally expect the situation to eventually de-escalate, with prices likely to fall once energy trade resumes. Still, energy markets remain highly uncertain. Williams reiterated that U.S. inflation is projected to return to the Fed’s 2% target by 2028. He pointed out that falling housing costs, declining goods inflation, and cooling core services inflation will continue to pull inflation lower. On the AI investment boom, Williams said he sees no signs of a bubble at present. He views AI as a general-purpose technology with transformative potential; current investment enthusiasm reflects market expectations of productivity gains and new business models, though competition among different firms and technology paths may lead to market volatility in the future. Additionally, Williams said the Fed scrapped forward guidance due to high current economic uncertainty, noting that policy should be adjusted dynamically based on data obtained at each meeting rather than setting a pre-determined path. He stressed that the Fed will continue to independently assess economic data and remain committed to bringing inflation back to its 2% target.

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