Fed Holds Steady in July, Signals Dovish Tone; US Tech Stocks Lead Rally on Rate Cut Expectations

Fed July Meeting: Rates Unchanged, Dovish Tone

On the afternoon of July 28, 2026, the Fed released its July Federal Open Market Committee (FOMC) statement, deciding to keep the benchmark rate in the 4.25%-4.50% range, in line with expectations. However, the previous phrase 'vigilant about upside inflation risks' was removed, replaced by 'inflation has moderated somewhat but remains elevated.' Analysts see this wording change as a signal the Fed is paving the way for future rate cuts.

Fed Chair Jerome Powell said at the subsequent press conference that the core PCE price index had slowed to 2.3% year-over-year, nearing the 2% target, while the labor market showed moderate cooling with the unemployment rate edging up to 4.2%. Powell stated: "If data continue along the current path, a rate cut could be considered as early as the September meeting." He also stressed that decisions depend on future economic data and are not predetermined.

Market Reaction: US Stocks Rally, Tech Leads

After the statement, the US stock market reacted positively. By the close, the S&P 500 rose 0.8% to 5,682.45; the Nasdaq Composite gained 1.2% to 18,921.33, with tech stocks particularly strong; the Dow Jones Industrial Average added 0.5% to 41,367.82. Nine of the 11 S&P 500 sectors advanced, led by information technology, communication services, and consumer discretionary.

Among major tech stocks, Apple (AAPL) rose 1.5%, Nvidia (NVDA) gained 2.3%, and Microsoft (MSFT) added 1.1%. Driven by sustained strong demand for AI chips, Nvidia hit a new record high, pushing its market cap above $3.8 trillion. Amazon (AMZN) climbed 1.8%, and Meta Platforms (META) rose 1.6%.

Industry Analysis: Policy Shift Expectations Boost Risk Appetite

Analysts at Yatai Global Financial Watch believe the Fed's dovish turn at this meeting mainly stems from the dual support of falling inflation and a cooling labor market. Since the second half of 2025, the US economy has slowed but not shown signs of recession, giving the Fed room for gentle adjustment. The market's probability of a 25-basis-point rate cut in September has risen from 65% before the meeting to 82%.

A strategist at Morgan Stanley noted that rate cut expectations are the core driver of recent US stock gains, especially benefiting rate-sensitive tech growth stocks. "Historically, when the Fed ends its tightening cycle and just before the first rate cut, tech stocks have averaged returns of over 15%. The current environment is similar to 2019, but the AI industry's fundamentals are stronger," the strategist added.

Bond Market and Dollar Reaction

The US Treasury yield curve flattened, with the 2-year yield down 5 bps to 4.32% and the 10-year yield down 3 bps to 4.08%, indicating markets expect looser future rates. The dollar index fell 0.4% to 101.23, weakening against major currencies like the euro and yen. This further supports dollar-denominated assets and capital inflows to emerging markets.

Next Focus: Inflation Data and Jobs Report

Before the September meeting, the Fed will receive two more inflation reports (CPI and PCE) and the August nonfarm payrolls report. Markets widely believe that if August core PCE falls below 2.2% and the unemployment rate exceeds 4.3%, the Fed will very likely start cutting rates in September. However, if economic data surprise on the upside, the rate cut timing may be pushed to December.

Yatai Global Financial Watch advises investors to moderately increase allocation to tech stocks and rate-sensitive assets in the short term, but be wary that the market has partly priced in rate cuts, and a correction could occur if data disappoints. Also, watch the upcoming Q2 earnings season, especially guidance from chip, consumer electronics, and cloud computing sectors.

Looking ahead, the Fed's monetary policy path will be a key variable affecting US stock trends. With the 'soft landing' expectation becoming clearer, the medium-term upward trend for US stocks is likely to continue, but volatility may increase as policy meetings approach.