19.03.25 - Fed rate decision

The market is widely expecting the US central bank to keep interest rates unchanged at its upcoming meeting today. However, attention will focus on Chairman Jerome Powell's comments amid rising concerns over economic confidence. These concerns have intensified due to President Donald Trump's escalating trade disputes and tariffs, increasing fears of potential stagflation. The Fed's statements on these economic challenges will be closely watched for reassurance and guidance.

Markets: US interest rates are moving sideways during recent days with the 10-year Treasury yield hovering around 4.3%; gold above USD 3’000 continues the uptrend; US dollar continues to decline against major currencies

My view: Given that recent inflation figures and consumer expectations remain significantly above the Federal Reserve's target of 2%, there's currently no room for an interest rate cut. Investors appear overly optimistic, anticipating hints of potential future rate cuts in today's Fed statement. However, the economic situation remains uncertain, particularly considering the unclear impact of tariffs on economic growth.

Political uncertainty continues and may even intensify, particularly with the upcoming second and major round of tariffs scheduled for April 2nd. This could further increase market volatility and elevate recession risks.
Should a recession occur, it is likely that US president Donald Trump would place blame on Fed Chairman Jerome Powell for not proactively lowering interest rates beforehand.

Under such a scenario, the stock market faces additional downside risk, potentially triggering a further correction with spillover effects on European and Asian markets. Long-term interest rates could decline further, whereas short-term rates might experience upward pressure.

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