On Wednesday, July 29th, the Federal Reserve will announce its July interest rate decision at 2:00 AM the following day. Federal funds rate futures indicate that maintaining the target range of 3.50% to 3.75% remains the baseline scenario, but the probability of a 25 basis point rate hike varies by approximately 29% to 38% at different points in time. Meanwhile, the 2-year Treasury yield rose to approximately 4.32%, the 10-year yield approached 4.64%, and Brent crude oil rose to around $85 per barrel. Interest rates, energy, and risk assets are all trading on a core question: will the Fed view current inflationary pressures as a temporary supply shock, or will it need to suppress them through further tightening of financial conditions? On the surface, the market faces two outcomes: "maintaining interest rates" and "a 25 basis point rate hike." In reality, there are at least four policy combinations: moderate maintenance, hawkish maintenance, limited rate hikes, and rate hikes with hints of further tightening. Since the market has already priced in a near 30% probability of a rate hike, simply maintaining interest rates does not necessarily lower yields. If the statement emphasizes inflation risks, downplays the possibility of future rate cuts, or if multiple committee members support a rate hike, short-term interest rates may still rise. Conversely, even if interest rates are actually raised, if Chairman Kevin Warsh emphasizes that this is a one-off adjustment in response to the energy price shock and does not commit to continuous action, long-term yields may not rise in tandem. Therefore, the primary variable to watch after the decision is not stock market fluctuations, but rather the 2-year yield, the expected overnight rate over the next year, and the slope of the yield curve. The short end reflects the policy path, while the long end also includes expectations of growth, term premium, and financial stability. The most noteworthy signal from this meeting is when these two directions diverge. Brent crude oil rose about 5% intraday on July 29 compared to the previous trading day, with a cumulative increase of over 20% over the past month. A rapid rise in energy prices will first push up overall inflation, and then transmit to core prices through transportation, chemicals, aviation, and household inflation expectations. However, monetary policy cannot directly increase oil supply; interest rate hikes mainly prevent price shocks from evolving into sustained inflation by suppressing demand and asset valuations. This exposes the Federal Reserve to significant asymmetric risks. If it doesn't raise rates, the market may question its tolerance for further acceleration of inflation; if it raises rates immediately, it may further compress credit and investment before supply constraints have been fully transmitted. Kevin Warsh recently emphasized maintaining price stability but did not pre-determine the direction of action in July. This communication approach, which relies less on clear forward guidance, has amplified the term premium before the meeting. More importantly, can oil prices remain high? A short-term jump will increase the probability of a rate hike, but only when energy costs are further incorporated into wages, service prices, and long-term inflation expectations will it be enough to change the medium-term policy rate center. In recent months, the rise in global interest rates has not only come from inflation expectations; rising real interest rates have also been a significant driving force. If the Federal Reserve signals a more hawkish stance, short-term interest rates in the euro and pound may continue to be reassessed, as cross-market funds will re-evaluate the future easing space of the European Central Bank and the Bank of England. This spillover does not mean that all maturities will rise at the same rate. Short-term rates are most sensitive to policy expectations, while long-term rates require stronger evidence of sustained growth and inflation. If Fed rate hikes lead to higher funding costs, wider credit spreads, and a decline in risk assets, market assessments of global demand may weaken, and 10-year and longer-term yields will encounter resistance. Therefore, a more logical extreme scenario is not a parallel upward shift of the yield curve, but rather a significant rise in 2-year rates, a limited increase in 10-year rates, or even a subsequent decline, ultimately resulting in a flattening curve. This indicates that the market acknowledges tighter short-term policy but does not believe that high interest rates can coexist with strong long-term growth.