Fed Rate Cut Expectations Pushed Back Further, Charles Schwab Notes

Following the conclusion of its two-day policy meeting, the Federal Open Market Committee held interest rates steady, aligning with market expectations. According to Lin Changjie, Senior Vice President and Financial Consultant at Charles Schwab Hong Kong, the Fed has now left rates unchanged within the 3.5% to 3.75% range for the third consecutive meeting. The current policy environment continues to be influenced by the situation in Iran, leading to a further delay in market expectations for interest rate cuts. Some investors are now betting that no rate reductions will occur this year. Lin pointed out that the core inflation rate rose slightly year-on-year to 3.1% in March, up from 3.0% in February, while the overall Personal Consumption Expenditures (PCE) index climbed to 3.39%. Although inflation has moderated, price pressures remain well above the Fed's 2% target. The labor market continues to show resilience, though its overall momentum is slowing rather than displaying clear weakness. He stated that the Fed's wait-and-see approach is primarily due to energy price volatility triggered by the conflict in Iran. Rising fuel costs are being directly passed on to consumers, making the inflation outlook more uncertain. Consequently, even as political pressure for easier monetary policy grows, the Fed finds it difficult to implement rate cuts. Lin also mentioned that the Fed is at a critical juncture, with Chair Powell's term set to expire on May 15. Market attention is shifting to his likely successor, Warsh, whose traditional interpretation of price stability and the Fed's role reinforces expectations that monetary policy will remain firmly focused on combating inflation, even if economic growth slows. He added that the Fed's policy direction will continue to depend on economic data. Given that geopolitical uncertainties are likely to persist in the short term, maintaining a diversified asset allocation and a long-term investment horizon is a commonly discussed strategy for navigating current market turbulence.