The 2008 financial crisis team reunites in Singapore! The expectation of a Fed rate hike clashes with "AI bubble pressure test". Will Powell's overseas debut end with a "hawkish" stance?

Newly appointed Federal Reserve Chairman Kevin Wash and three other seasoned central bank policy makers who experienced the 2008 global financial crisis will appear together this week, while potential danger factors for a new round of financial turbulence continue to trouble global central bank officials, including the Fed. This Fed chairman, making his first public appearance outside the United States since taking office in May, will appear at the annual central bank seminar held by the European Central Bank in Portugal on Wednesday local time, along with ECB President Christine Lagarde and other key players in that market crisis. In addition to any hints or forward guidance regarding central bank interest rates, Wednesday's central bank monetary policy panel discussion will also be closely scrutinized to observe whether the atmosphere at the central bank seminar has changed after Wash's arrival. Wash, appointed by US President Donald Trump, recently chaired his first Fed FOMC monetary policy decision in his career as Fed Chairman. Last year in Sintra, former Fed Chairman Wash's predecessor Jerome Powell received a standing ovation, and was repeatedly praised for standing firm against baseless attacks from US President Trump. As the group who experienced the 2008 global financial crisis reunites in Sintra: Wash is reshaping the Fed with price stability, and the AI super cycle welcomes a central bank trial The increasingly leveraged and crowded positions in the AI semiconductor trading theme, along with pressure from leading consumer electronics companies like Apple raising prices, have led to significant market volatility in the semiconductor sector, as evidenced by the Philadelphia Semiconductor Index experiencing a single-day drop of 7.9% and multiple sharp fluctuations exceeding 5% within a month. This highlights that the AI computing power industry chain is entering a phase of high volatility, leverage, crowded long positions, and pressure to fulfill high expectations, with global central bank leaders' latest statements and views on the unprecedented AI investment boom being of crucial importance. Undoubtedly, the most critical macro backdrop currently is the first global public appearance by Wash as Fed Chairman coinciding with the financial stability debate during the AI capital expenditure boom. The latest annual report from the Bank for International Settlements warns that high public debt, financial fragility, recurring inflation, and the sustainability of the AI investment boom are core risks facing the global economy, particularly emphasizing that if the AI investment boom relies on excessively high return expectations and complex debt financing structures, it could increase vulnerability in stock, bond, and even the entire financial system. A series of important issues related to financial market stability surrounding stocks and bonds, especially a series of heavyweight and hot issues related to the AI investment boom, will also be another theme at this central bank seminar and will loom closer in the shadows as officials discuss the background. This also means that central bank officials will not only view cutting-edge AI technology as a labor productivity dividend, but will also consider it as a macro financial variable constituted by asset valuation, credit expansion, overheated AI computing infrastructure-related capital expenditures, and bottlenecks in electricity/chip/data center computing power resources. Just a few days ago, Bank of Canada Governor Tiff Macklem warned that excessive investment in AI computing infrastructure in the US market "is laying the groundwork for painful corrections." Last month, the European Central Bank issued a similar warning about the risk of severe market turbulence. On Sunday, the Bank for International Settlements emphasized that the collapse of the AI investment boom, inflation, and fiscal pressures are among the most troubling threats facing the current global prosperity. The four central bank governors in the panel discussion on Wednesday all remember how things could go wrong and go completely out of control. In 2008, Macklem was at the Department of Finance in Ottawa and participated in a series of meetings from the G7 to the Financial Stability Committee. Bank of England Governor Andrew Bailey was then a Bank of England official who designed the bank bailout program, while Lagarde was the French Finance Minister at the time. Wash himself was a Fed Governor at the time, and played a central role in designing the massive bailout of the largest nine commercial banks on Wall Street by the US government in the fall of 2008. "With Wash making his debut appearance as Fed Chairman and appearing alongside Lagarde, Bailey, and Macklem, discussions are likely to go far beyond inflation and focus on how central banks promote significant innovative technologies in the new geopolitical uncertainty landscape and the financial market stability risks related to AI." Simona Delle Chiaie, Chief Economist in the eurozone at Bloomberg Economics said. This week, central bank officials in Sintra may also take a moment to mourn one of their own, the recently deceased former Fed Chairman Alan Greenspan, whose 18-year tenure was overshadowed by the 2008 crisis. As the Fed under Wash focuses on "saying less," market bets on rate hikes are significantly heating up Wash's global debut in historic Sintra, Portugal, is essentially not just another central bank forum speech, but the first public calibration of the market's response to the new era of Fed under Wash. The June FOMC monetary policy meeting kept the federal funds target range at 3.50% - 3.75%, and the statement emphasized that the US economy is still in robust expansion, inflation remains above the 2% target, and explicitly included "the Committee will achieve price stability" in a strong language. Wash previously opposed excessive reliance on forward guidance, and it is expected that at the Sintra forum of the European Central Bank, he will continue to emphasize anti-inflation efforts and reduction of "noise signals," rather than providing a clear rate path for July or September. This means that traders may not get the traditional "dovish monetary policy path reassurance," but will have to reassess policy paths based on employment, inflation, oil prices, the US dollar, and long-term interest rates themselves. The rate market is pricing in this "low-information, high-credibility" new central bank communication style as increased short-term interest rate risk. Interest swap trading themes have reflected an approximately 9 basis point rate hike probability for the July meeting, translating into a 36% probability of a 25 basis point rate hike; the open positions in August federal funds futures contracts have increased from about 454,000 to nearly 590,000, an increase of around 30%, and new positions lean towards shorting, highlighting that a majority of traders are more inclined to bet on the Fed returning to the rate hike process in September earlier and more aggressively. These all indicate that the market is betting on an earlier and more hawkish central bank monetary policy shift. According to the latest compilation from the CME FedWatch tool, futures traders generally expect the Fed to raise rates two to three times this year, with the probability of a rate hike in September currently as high as 64%. Investors are eagerly awaiting the release of June ADP employment data and non-farm payroll data later this week to further assess the Fed's stance on rate hikes or broader monetary policy issues. Meanwhile, long-term US Treasury yields have attracted buying interest, with the 10-year Treasury yield recently dropping significantly from around 4.5% to around 4.3%, reflecting a classic "hawkish credit trade": the short end rising due to rate hike expectations, and the long end falling to indicate market belief in a stronger anti-inflation posture and the potential for AI technology to significantly lower future inflation premiums and long-term Treasury yield premiums. The global financial markets are currently in an environment where rising US Treasury yields, US employment and inflation data, and potential Fed rate hike expectations are causing disturbances. A recent research report from Deutsche Bank indicates that "The Fed is keeping quiet" or canceling forward guidance and rate dot plots is more of Wash's attempt to reshape central bank communication discipline, rather than simply creating a messaging vacuum. The Deutsche Bank analyst team mentioned that historically, phases with fewer post-meeting speeches like July 2019, January 2022, and July 2023 often signal a change or near change in policy direction, as the committee needs to reduce noise, align its tone, and avoid individual officials prematurely leaking internal deliberations. Wash has set up a special task force on communication methods, data sources, inflation frameworks, balance sheet assets and liabilities, and productivity metrics, indicating his focus on "how the Fed judges the world" rather than frequently hinting at "how the next meeting will vote." This impact on the market is a double-edged sword: while a unified tone may help restore the Fed's credibility, any non-farm or CPI data falling short of expectations when investors have already built up large short positions could trigger a rapid reversal in short-term interest rates, short-term Treasury yields, and even a global tech rebound trajectory linked to AI computing infrastructure. Aside from the heavyweight remarks coming from Fed Chairman Wash, what are some other focus points? In other regions, investors will also closely follow the release of important economic activity data such as US employment data, inflation data in various Asian and European countries, and central bank interest rate decisions in Africa. The above map shows central bank interest rate decisions to be made this week. Note: Map data display different central banks' interest rate decision schedules. United States and Canada In the United States, the main event of the shortened week due to the Independence Day holiday will be the monthly non-farm payroll report to be published on Thursday. Economists unanimously expect the report to show an additional approximately 115,000 jobs in June, marking the best six-month employment performance in nearly two years. Combined with a slight increase in wage growth expected and the continued stability of the unemployment rate, these data will almost certainly reinforce the increasingly aggressive rate hike bets in financial markets, indicating that the next step for the Fed is more likely to be a rate hike rather than a rate cut. As shown in the chart above, US employment is strong and the unemployment rate is stable. Note: Unemployment rate data for October 2025 is unavailable due to the US government shutdown. The schedule this week also includes the usual dense release of other labor market data at the beginning of each month: the government job openings report covering May will be released on Tuesday, followed by ADP Research's monthly employment figures for June on Wednesday, and the latest layoff announcements from Challenger, Gray & Christmas Inc. Other data worth watching includes the latest Purchasing Managers' Index survey by the Institute for Supply Management in the US, which may show that manufacturing activity remained robust in June. Apart from Wash, there may not be many speeches by Federal Reserve officials before the July 4 holiday. It is expected that Canada's industry-specific gross domestic product for April will grow by 0.4%, driven by increased oil and gas extraction and manufacturing output. The preliminary estimate for May is also expected to indicate continued momentum, supported by the rebound in the labor market and real estate activity. Overall, the data should show a rebound in the second quarter after two consecutive quarters of contraction. The US, Canada, and Mexico trade ministers will hold a virtual meeting on July 1 to formally launch the mandatory review of the trilateral trade agreement, which still faces uncertainties in the future. Asia On Wednesday, Indonesia, Malaysia, the Philippines, Thailand, Taiwan, Vietnam, and South Korea will release Purchasing Managers' Index reports, with South Korea's May data rising to the highest level in about five years due to the prosperity of AI activities. The Bank of Japan will release its quarterly Tankan survey of business sentiment on Wednesday, with economists expecting related indicators to roughly stabilize in positive territory. As shown in the chart above, demand for AI-related semiconductor equipment, raw materials, and storage chips is driving up export prices for Japanese tech companies. Economists also expect companies to raise their capital expenditure forecasts for the current fiscal year to a growth of 10.9%. If the results meet expectations, it will continue to push the Bank of Japan towards future rate hikes in the coming months. Indonesia, South Korea, Pakistan, Sri Lanka, and Vietnam will publish inflation updates. Australian Treasurer Jim Chalmers said on Sunday that he expects overall inflation in the country to reach a peak of around 4.25% around mid-year, lower than previously predicted, as falling oil prices help relieve inflation pressures. New Zealand will release the June Business and Consumer Confidence Index, while Indonesia, Pakistan, Australia, South Korea, Thailand, the Philippines, Vietnam, and Sri Lanka will sequentially announce trade data this week. Europe, Middle East, Africa European Central Bank policymakers will spend most of this week in Sintra, digesting key data releases from the entire region, with the last eurozone inflation estimate before the July decision set to be released on Wednesday. As shown in the chart above, eurozone inflation is expected to slow for the first time in months. The overall data is expected to show a slowdown since the outbreak of the Iran war, reflecting weakening inflation in most areas of the region. France and Spain will later release industrial production data on Friday. Neutral country Switzerland will publish inflation data on Thursday. Price growth in that country remains far below the Swiss National Bank's 0% to 2% target range, and June inflation may have slowed to 0.5%. The strength of the Swiss Franc is a significant pressure factor in suppressing inflation in the country, as officials are more willing to intervene in the last month of this quarter, with risk aversion funds flowing in due to the Iran war. In the UK, with Keir Starmer resigning, investors may focus on the economic policy details that potential future Prime Minister Andy Burnham may adopt. Bank of England officials will also make frequent appearances. In addition to Bailey's appearance in Sintra, he also plans to attend another important meeting in Aix-en-Provence, a city in southern France, on Friday, along with Lagarde and other European central bank colleagues. In Turkey, data scheduled for release on Friday is expected to show that annual inflation in June resumed its downtrend after a brief acceleration following the Iran war. This data will be a key factor for the central bank's decision next month, as policy makers were forced to pause their easing cycle earlier to curb war-driven risks.