Chin Hung Investment Radar: Fed Holds Rates, Bond Yields Surge! What’s Next for Investors Amid Inflation Noise?

The Federal Reserve announced it would maintain the benchmark interest rate unchanged, indicating that while recent energy prices have pushed up overall inflation, price pressures have not yet broadly spread and are insufficient to force the Fed to restart rate hikes. However, 3 out of 12 voting members supported a 1-percentage-point rate hike, reflecting growing internal divergence within the Fed on inflation risks and a policy stance that has become more hawkish than in the past. What signals should investors watch next? And how will this affect the stock market?

1. The Fed stands pat, but market rates tighten first

The Fed kept the benchmark rate unchanged in the 3.50% to 3.75% range, as expected by the market. However, the vote was 9 in favor and 3 opposed, with the three dissenting members advocating for a 1-percentage-point hike. This shows that as inflation pressures reheat, there is growing internal disagreement within the Fed on whether further tightening is needed. Although Chair Walsh chose not to raise rates this time, the bond market has already made the decision for the Fed. Between the previous Fed meeting on June 17 and the current meeting on July 30, the yield on the 10-year U.S. Treasury rose from 4.49% to 4.68%, an increase of 0.19 percentage points. The 30-year Treasury yield also rose from 4.93% to 5.20%, up 0.27 percentage points. Corporate bond yields also increased: investment-grade corporate bonds rose from 5.25% to 5.45%, and non-investment-grade bonds rose from 7.35% to 7.59%, increases of 0.20 and 0.24 percentage points, respectively. This indicates that even with policy rates unchanged, market rates and corporate financing costs have already risen, meaning financial conditions have tightened in practice, reducing the Fed’s immediate need to hike rates.

Source: Bloomberg, Chin Hung Buy Funds analysis, data as of 2026/7/30. U.S. non-investment-grade and investment-grade corporate bonds measured by ICE bond index yield. Comparison period: 2026/06/17 (previous Fed rate decision) to 2026/07/30 (current Fed rate decision), changes in percentage points.

2. Rents and wages not accelerating, inflation spillover risk limited

In addition to energy prices, housing costs and wage growth are key indicators for judging whether U.S. inflation will reheat. Housing costs directly affect the rent component of inflation, while wages are highly correlated with service sector costs. If rents and wages rise together, it usually signals that inflationary pressures may spread from energy to broader core prices and service costs. Therefore, observing more timely rent indicators and year-over-year wage growth helps determine whether this inflation uptick is just a short-term fluctuation caused by energy prices or the beginning of broader price pressures.

For rent, the Zillow Rent Index tracks asking rents for currently listed rental properties, providing a more real-time reflection of supply and demand in the rental market. For wages, the year-over-year growth rate of average hourly earnings for all employees in the U.S. private sector helps gauge business labor costs and service inflation pressure. Recent trends show the Zillow rent index’s year-over-year growth peaked above 15% in early 2022 but has since clearly declined, now down to around 2%. Meanwhile, wage growth has remained roughly in the 3% to 4% range and has not re-accelerated, indicating that rent and wage pressures have not risen in tandem with energy prices.

Source: Bloomberg, Chin Hung Buy Funds analysis, data period: 2020/06–2026/06. Wages based on year-over-year growth of average hourly earnings for all employees in the U.S. private sector.

3. What the market truly fears isn’t rate hikes, but recession

Many believe that as long as rates enter a downward phase, stocks tend to rise; conversely, if rates are rising, stocks tend to fall. To test this view, we backtested data from 1971 to present. Each month’s policy rate was compared to one year prior: if higher, classified as a rising rate environment; if lower, as falling; if unchanged, as stable. We then distinguished whether the economy was in recession and observed the average performance of the S&P 500 index over the following year.

The results show that the key factor affecting future U.S. stock performance isn’t whether rates are rising or falling, but whether the economy is in recession. If no recession occurred, average one-year forward returns for the S&P 500 were approximately 11.7%, 18.3%, and 19.7% in rising, falling, and stable rate environments, respectively. But if a recession occurred, average returns dropped to -5.2% and -10.6% (in historical samples, no recessions occurred during stable rate periods, so no recession scenario data exists).

Source: Bloomberg, Chin Hung Buy Funds analysis, in USD, data period 1971–2026. U.S. stocks represented by S&P 500 Index, recession defined by NBER. Rate environment determined by comparing monthly policy rate to one year prior: higher = rising, lower = falling, same = stable. Stock performance measured as average one-year forward return of S&P 500 from that month. No recession samples during stable rate periods. Historical backtests are for reference only and do not guarantee future performance.

Chin Hung Investment Strategy

Don’t over-guess short-term rates—focus on fundamentals and long-term growth

Energy prices are temporarily pushing up overall U.S. inflation, but core CPI and wage growth have not accelerated in tandem. Meanwhile, leading indicators like the Zillow rent index have clearly cooled, suggesting housing inflation still has room to decline. Currently, the Fed needs more time to confirm whether the disinflation trend is solid. Chin Hung Buy Funds believes that rather than over-speculating on short-term policy changes, investors should focus on fundamentals like corporate earnings and industry trends. In the long term, investors can gradually build positions in U.S. equity or tech-focused funds to participate in the long-term growth of U.S. stocks, leveraging time and compounding to steadily grow assets.

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