"Is the 'Waller debut' a 'once-in-a-decade turning point'? Nomura: Beware of 'preemptive rate hikes' turning into 'substantive tightening'"

``` Nomura Securities Chief Macro Strategist Naka Matsuzawa believes that the Fed’s June FOMC meeting may, in hindsight, prove to be a "once-in-a-decade turning point"—that is, the inflection point of the credit cycle and the beginning of the end of the AI boom. According to news from Wind Chaser Trading Desk, in a macro strategy weekly report released on June 19, Naka Matsuzawa, Chief Macro Strategist at Nomura Securities, pointed out that the market is currently overestimating the risk of Fed rate hikes this year, but is seriously underestimating the risk of a longer-term rate hike path. He warned that the one or two “preventive” rate hikes currently characterized as such by both the market and the Fed carry a substantial risk of evolving into a systemic tightening cycle. If so, it will have a profound impact on the credit cycle. The core basis for this judgment is that Matsuzawa expects investment related to AI and AI-driven productivity increases will drive economic growth and inflation beyond the Fed’s expectations. If this scenario materializes, the 10-year US Treasury yield could soar well above 5%.

FOMC signals not yet fully digested by the market

Matsuzawa pointed out that the market has not yet fully absorbed the message delivered at this FOMC meeting, which is not entirely surprising. Because the FOMC’s most crucial member, new Chair Walsh, has rarely spoken so far and has not submitted his own rate forecast in the dot plot. Matsuzawa is particularly focused on two points:

First: The urgency and trigger conditions for the Fed to raise rates;Second: The actual likelihood of the Fed initiating rate hikes.

He judges that the market is overestimating the former, but the underestimation of the latter is more noteworthy.

Matsuzawa expects that after more neutral-to-dovish remarks from Fed officials in the coming week, including Christopher Waller and John Williams, there will be some relief in market concerns over the imminence of a rate hike this year. But on the more crucial issue of the depth and duration of the rate hike path, there will be no substantive new information in the near term. The next important test point will be the US employment data released on July 2.

Logically contradictory dot plot: Can the “insurance” rate hike framework stand?

The median forecast in this FOMC dot plot projects one rate hike in 2026, and rate cuts for both 2027 and 2028. This path logically raises a direct question: If the Fed plans to cut rates in the future, why hike now? Matsuzawa’s interpretation is that members advocating a rate hike this year (most likely regional Fed Presidents) define this rate hike as a purely “insurance” operation. The logic is that a single preventive rate hike is enough to prevent the economy and inflation from overheating, while other factors such as stable oil prices will eventually create space for returning the rate back to the neutral level of 3.1% through subsequent rate cuts. Supporting this mild framework are the economic forecasts from this meeting:

2026 to 2028 economic growth is forecast at 2.2%, 2.3%, and 2.2% respectively, with almost no change;Unemployment rate is forecast at 4.3%, 4.3%, and 4.2%, barely reaching full employment (4.2%) by 2028.The lower bound of the 2028 unemployment rate forecast is 4.0%, meaning almost no members are worried about overheating risks in the economy and inflation.

Matsuzawa believes the Fed will stay put in 2026. He argues that once Walsh’s policy stance becomes clearer, or inflation expectations are confirmed to be stable (such as oil prices falling further), the current market expectations for about 1.5 rate hikes this year could quickly be corrected or disappear.

Biggest risk: Preventive rate hikes sliding into a real tightening cycle

However, Matsuzawa has a very different view on the longer-term path. He is skeptical of the Fed’s consensus assumption that “the economy and inflation won’t overheat before 2026.” The report points out that the ongoing expansion of AI-related investment and AI-driven productivity gains (i.e., increases in real income) will cause economic growth and inflation to accelerate beyond the Fed’s expectations. If this happens, the Fed will not stop at one or two insurance rate hikes, but will be forced into a regular tightening cycle to cool the economy and inflation, or the market will price in this path in advance. Historical data offers a reference: During the Fed's most recent rate hike cycle from 2022 to 2023, the 2-year real yield, which reflects policy rate expectations, once broke above 3.0%, only retreating after the SVB shock caused financial turmoil and economic slowdown.

(Inflation expectations and real yields at different US Treasury maturities)

The current 2-year real yield is about 2.00%, which means the Fed has at least 100 basis points of possible rate hikes left. Matsuzawa warns that if this scenario occurs, the 10-year US Treasury yield will very likely exceed 5.00% by a wide margin.

The meaning of the credit cycle at this "once-in-a-decade turning point"

Naka Matsuzawa proposes a more macro structural proposition: Looking back, this FOMC meeting may prove to be a "once-in-a-decade game changer"—the inflection point marking the end of the AI boom credit cycle. His core logic is that the AI boom will not end naturally; only when the Fed truly begins raising rates will it end. From the other side of the credit cycle, the end of the AI boom will also mean that the bond market will "discover the true neutral rate," thus breaking away from its structural downward trend. Currently, while the market is pricing in rate hikes earlier than Naka Matsuzawa previously expected, the shape of the rate hike path (up then down, eventually returning close to the starting point) suggests the market still sees this round of rate hikes as a one-off preventive operation. If this judgment is wrong, the entire logic of credit cycle evolution will be completely rewritten. ~~~~~~~~~~~~~~~~~~~~~~~~ The above premium content is from Wind Chaser Trading Desk . For a more detailed interpretation, including real-time insights and frontline research, please join [Wind Chaser Trading Desk • Annual Membership].Risk Warning and DisclaimerThe market carries risks; investment must be cautious. This article does not constitute individual investment advice and does not take into account any user’s particular investment objectives, financial condition, or needs. Users should consider whether any opinions, views, or conclusions in this article suit their specific situation. Any investment made accordingly is at your own risk. ```