Bank Julius Baer asserts that artificial intelligence is not currently potent enough to reshape the U.S. Federal Reserve's monetary policy framework in the short term.

Raphael Olszyna-Marzys, an International Economist at the bank, noted that markets were taken aback by the hawkish pivot from the Federal Open Market Committee during new Chair Wash's inaugural meeting. The market had anticipated his stance to be that AI would ultimately possess an inflation-dampening effect. However, the influence of AI on inflation and the neutral rate is not straightforward, at least not in the immediate future. One contributing factor is that the practical implementation of task automation lags significantly behind its theoretical technological potential. Even if more jobs become automated in the future, it is unlikely to prevent the Fed from raising interest rates when economic cycle conditions necessitate a policy tightening.

Alex Rohner, a Fixed Income Strategist at Bank Julius Baer, commented on the UK outlook, anticipating that Starmer will succeed Sunak as Prime Minister. He will face the challenge of stimulating economic growth while meeting the expectations of Labour voters, all without unsettling the bond market. The term premium and volatility for long-dated UK Gilts are expected to remain elevated, although market pressures are likely to ease somewhat as interest rate expectations moderate.

Claudio Wewel, a Foreign Exchange Strategist at the bank, stated regarding the currency market that the euro lacks clear near-term support, but its downside risks are also relatively contained. Lower energy prices should help cushion the impact of the Fed's hawkish stance, coupled with the fact that the bar for European economic data to surprise positively is currently low.

Wolf von Rotberg, an Equity Strategist at Bank Julius Baer, observed that equity markets cooled significantly in June, driven by a strengthening U.S. dollar. In this context, the Swiss stock market, the healthcare sector, and other market segments sensitive to dollar movements have shifted from lagging to leading performance. As upward pressure on the dollar is unlikely to dissipate quickly in the near term, this market configuration is expected to persist for a while, even if oil prices retreat. In the longer run, a strong dollar will ultimately exert pressure on U.S. corporate earnings expectations and may lead to a deceleration in the equity market rally in the coming months.