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market analysis

Fed holds its way, Powell's "hawkish" signal delays rate cut expectations

Wonderful introduction:

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Hello everyone, today XM Foreign Exchange will bring you "[XM Group]: The Federal Reserve remains unchanged, Powell's "hawkish" signal delays the expectation of interest rate cuts." Hope it will be helpful to you! The original content is as follows:

Asian Handicap Market Review

On Wednesday, the US dollar index strengthened, as the Federal Reserve remained silent and Powell reiterated his willingness to wait for the prospects to become clearer, and the US dollar index strengthened. As of now, the US dollar price is 99.85.

Summary of the Foreign Exchange Market

The Federal Reserve has kept interest rates unchanged for the third time in a row, and the statement emphasized the rising risk of rising inflation and unemployment. Powell yelled the uncertainty factor and the low cost of continuing to wait and see, saying he was not in a hurry to cut interest rates. Powell also said he had no intention of meeting with Trump on his own initiative, whose call for a rate cut would not hinder the Fed's work.

People inside the matter: The Trump administration plans to lift AI chip restrictions in the Biden era.

The German Defense Minister plans to increase defense spending to more than 60 billion euros per year from 2025.

India-Pakistan situation

① India will conduct large-scale air xmmarkets.cnbat exercises in areas near the international borders of Rajasthan; ② India said that if Pakistan responds to the attack, India will also respond; ③ Israel's ambassador to India: Israel "supports India's right to self-defense"; ④ Pakistani Defense Minister: It is trying to avoid a "full war."

Tariffs

① EU trade chief said that the European xmmarkets.cnmission will announce preparations for the next countermeasures to deal with U.S. tariffs; ② EU said that if trade negotiations fail, tariffs will be imposed on Boeing and U.S. cars; ③ Trump's tariffs on baby productsThe exemption means ignorance; ④ At Powell's press conference, the term "tariff" was mentioned more than 20 times.

Summary of institutional views

Barclays: Powell has become more hawkish, what degree of restriction does the Federal Reserve want to maintain?

The Fed is more risky to postpone interest rate cuts this year, especially if inflation expectations continue to rise and the labor market remains resilient for longer than expected. Fed Chairman Powell's tone was tougher than at a press conference in March. We believe that the FOMC will want to maintain a restrictive policy stance so as to ultimately bring inflation back to the 2% target, but will avoid gradually increasing restrictiveness while the economy and labor markets deteriorate. Barclays reiterated its benchmark expectations that FOMC will cut interest rates by 25 basis points twice in July and September this year, and cut rates twice in 2026.

Dutch International Bank: Beware of this rare action by the Federal Reserve

The Federal Reserve once again stood still and pointed out in its statement that the economy continued to "expand at a steady pace", labor market conditions remained "stable", and inflation "still rising". All of these words are the same as last time. The key revision is that the Fed believes that “the uncertainty in the economic outlook has increased further” and that “the risk of rising unemployment and rising inflation has risen.” But there is nothing particularly surprising about these words, so the market response is limited.

U.S. President Trump and Treasury Secretary Becent will continue to put pressure on the Federal Reserve to cut interest rates, but amid the continued strengthening of the labor market, Fed officials are focusing on evaluating the impact of government trade policies on inflation, and these cuts may continue to be ignored. As the tariff imposition will push up prices, and port operators and logistics xmmarkets.cnpanies frequently warn of possible supply shortages, short-term inflation risks may be further intensified. Therefore, the Fed continues to maintain a "waiting and watching" attitude. Federal Reserve Chairman Powell warned last month: "Our duty is to ensure long-term inflation expectations are firmly anchored and to prevent one-time price increases from evolving into persistent inflation." He reiterated this position at a press conference after the interest rate resolution.

Current consumer and corporate confidence plummeted to historic recession levels, which will surely arouse the Federal Reserve's alertness. Against the backdrop of increased economic uncertainty and limited government spending, trade agreements and tax cuts must be reached as soon as possible to avoid the economy sliding into a stagflation recession. But we believe that as the latest tenant rent index released by the Cleveland Fed suggests, the continued cooling of housing-related inflation will open up policy space for the Fed to cut interest rates later this year. The market generally expects the Fed to initiate a rate cut in July, but we believe there is a risk of delaying it - the Fed may follow the 2024 model and directly issue a 50 basis point sharp rate cut in September.

Rabobank: Is the Fed's interest rate cut close? This report may reveal the answer

As expected, the Federal Reserve FOMC unanimously decided to maintain the target range of federal funds rate at4.25-4.50% unchanged. In its official statement, the FOMC said “Although the volatility of net exports affected the data, recent indicators indicate that economic activity continues to expand at a steady pace.” In other words, negative GDP growth in the first quarter did not raise the xmmarkets.cnmittee’s concerns. Looking ahead, however, potential challenges are intensifying: “The uncertainty of the economic outlook has increased further. The xmmarkets.cnmission notes the risks faced on both sides of its dual mission and judges that the risks of rising unemployment and rising inflation have risen.”

In a pre-prepared speech, Federal Reserve Chairman Powell stressed that the economy remains solid despite rising uncertainty. The decline in GDP growth in the first quarter was mainly due to net export fluctuations caused by the market's expected response to tariffs, while the labor market remains strong, and the current monetary policy stance puts FOMC in a favorable position. He reiterated that if the FOMC faces a challenging situation of conflicting dual missions (employment and inflation), the xmmarkets.cnmission will xmmarkets.cnprehensively assess the extent of target deviation and the time required for the closure of the gap. In fact, this statement is almost exactly the same as the statement made on April 16. During the Q&A session, when asked whether it has been clearer which side of the dual mission should be prioritized, Powell responded that it is too early to judge the specific impact of tariffs. He repeatedly emphasized that FOMC has the capital to be patient, and the best strategy at present is to wait for the situation to become clear before deciding on the policy direction. But at the press conference, he failed to clarify what kind of data changes needed to trigger the action. Powell actually sent no new signals at this press conference and avoided all issues involving Trump. The only thing that is certain is that the Fed will take a wait-and-see attitude and determine policy priorities based on which targets deviate more significantly in the dual mission (employment and inflation) and the expected duration.

Our view is that FOMC is not in a hurry to cut interest rates, but is waiting for government policies and their impact on the economy to become clearer. We expect the stagflation dilemma will eventually lead to the Federal Reserve suspending its interest rate cut cycle. But if the labor market worsens further, it may still prompt FOMC to cut interest rates again in the xmmarkets.cning months. We currently expect the last rate cut to be June 18 (after suspension). However, this will depend on upcoming data, especially the May non-farm employment report to be released on June 6. Non-farm employment growth has slowed to the range of 100,000 to 200,000 people this year, but most of the impact of tariffs has not yet appeared, which may be reflected as early as May's report. This will become the key basis for the Federal Reserve to justify the rate cut in June. However, if the impact of tariffs on employment data is delayed, the last rate cut may also be postponed to July or September.

Deutsche Bank: Powell has cracked down on expectations of an upcoming interest rate cut, and the Federal Reserve is not expected to cut interest rates by x months.

Feder Chairman Powell emphasized at a press conference after the meeting that the US government is implementing extensive reforms in many areas, especially in terms of tariffs. However, the extent and details of these changes, as well as their impact on economic growth and inflation, remainVery uncertain. Therefore, it is impossible to say now which part of the Fed's dual mission faces greater risks. Therefore, the Fed is not in a hurry to change its key interest rates. On the contrary, given the continued strong economy, it is in a wait-and-see position and the cost of waiting is low.

Powell is skeptical of the preemptive rate cut. He mentioned the situation in 2019, when the Fed lowered interest rates in response to economic weakness and inflation targets below 2%. It was possible to take preemptive actions at the time, but today, the situation is different.

With the assumption that inflation and unemployment rates rise, the Fed will focus on how far these two tasks deviate from the target and how quickly they can recover. However, monetary policy decisions will become very xmmarkets.cnplicated, and the Fed hasn't encountered this for a long time.

While Powell stressed that the Fed could act quickly if necessary, it is more likely that the Fed will wait longer before lowering key interest rates. This is consistent with our expectations that the Fed will not cut interest rates again until September. Trump is unlikely to be happy that the Fed continues to refuse to lower interest rates. However, Powell refused to answer any questions about his relationship with the White House.

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market analysis

Fed holds its way, Powell's "hawkish" signal delays rate cut expectations

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Barclays: Powell has become more hawkish, what degree of restriction does the Federal Reserve want to maintain?

Dutch International Bank: Beware of this rare action by the Federal Reserve

Rabobank: Is the Fed's interest rate cut close? This report may reveal the answer

Deutsche Bank: Powell has cracked down on expectations of an upcoming interest rate cut, and the Federal Reserve is not expected to cut interest rates by x months.

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Trusted by over 15 Million Traders

The Most Awarded Brokerfor a Reason

Easy Access to 1,400+ Global Assets

market analysis

Fed holds its way, Powell's "hawkish" signal delays rate cut expectations

Asian Handicap Market Review

Summary of institutional views

Barclays: Powell has become more hawkish, what degree of restriction does the Federal Reserve want to maintain?

Dutch International Bank: Beware of this rare action by the Federal Reserve

Rabobank: Is the Fed's interest rate cut close? This report may reveal the answer

Deutsche Bank: Powell has cracked down on expectations of an upcoming interest rate cut, and the Federal Reserve is not expected to cut interest rates by x months.

Related News

XM Forex Trading Platform

CATEGORIES

News

The Most Awarded Broker
for a Reason