To The Moon

The core of this meeting is to ease market pressures through technical tapering adjustments, while maintaining high interest rates to curb inflation.Despite the rising risk of economic stagflation, the Fed is still trying to find a balance between "premature relaxation" and "excessive tightening".Earlier, the market focused on:

1. Whether the pace of tapering slows further: early termination of QT cannot be ruled out if economic data deteriorates;

2. The reliability of the expected rate cuts: if inflation sticky than expected, the dot plot may quickly turn.(The success of the Fed's "tightrope" strategy will depend on the outcome of the game of inflation and growth in the coming months)

After the release of the resolution, U.S. stocks and bonds rose, the dollar fell back, the market bet on dovish turn.But after Powell denied the change in policy stance, risk assets retreated from their highs and the U.S. bond yield curve flattened.The market returned to rationality after a brief carnival

Market dovish interpretation of the "slowdown in tapering" and the Fed's "technical adjustment" positioning there is a discrepancy, the Fed's "data-dependent" model has not changed.

Four key points

1. Taper slowdown (QT Taper): a "soft landing" that exceeded expectations (the main reason for the market rally)

Importance: ★★★★★

The most over-expected move of the meeting was a significant slowdown in the pace of tapering from April 1st.The Fed lowered the monthly redemption limit for Treasuries from $25 billion to $5 billion (an 80% reduction), but left the pace of agency mortgage-backed securities (MBS) tapering unchanged.This adjustment was described by Chairman Powell as a "common-sense technical maneuver", analogous to a "soft landing of an airplane", aimed at avoiding turbulence in financial markets due to a sudden tightening of liquidity.

Key Interpretation:

- Policy intent: the Fed stressed that the slowdown in tapering is not a monetary policy shift, but a technical adjustment, mainly to deal with changes in the balance of the Treasury's cash account (TGA) and the debt ceiling issue, while optimizing the structure of the position (the future is dominated by Treasuries).

- Internal controversy: Governor Waller (Waller) voted against the original pace of tapering, arguing that it should be maintained.His stance may reflect some officials' concerns about slowing tapering too soon, and we need to be wary of future policy divergences.

- Market impact: U.S. bond yields fell (especially short-term), the dollar narrowed, showing that the market interpreted this as a "dovish signal".But Powell explicitly denied that this is a "pause shrinkage" (pause), the subsequent rhythm is still variable.

2. Interest rate policy: no change, two rate cuts within the year is expected to remain unchanged.

Importance: ★★★★☆

The Fed left its benchmark interest rate unchanged at a range of 4.25%-4.5%, in line with market expectations.The dot plot suggests two more rate cuts in 2025 (median year-end rate of 3.9%) and a further cut to 3.4% in 2026, leaving the long-term neutral rate at 3%.This path is consistent with last December's forecasts, suggesting that officials believe current rates are sufficiently restrictive, but that cuts will need to wait for clearer data support.

Key Interpretation:

- Policy tone: Powell downplayed the recent upward pressure on inflation, saying that "hard data (e.g., employment, CPI) are still stronger than soft data (survey expectations)," suggesting that there is no rush to cut interest rates.

- Balance of risks: Although the statement deleted the phrase "employment and inflation risks are roughly balanced", but Powell emphasized that "uncertainty increases", we need to be vigilant about the economy hard landing or inflation secondaryThe two-way risk of a hard landing or a second rise in inflation.

3. Economic Forecast: stagflation concerns emerge

Importance: ★★★★☆

The Federal Reserve has significantly revised its economic forecasts, characterizing stagflation as "slowing growth + stubborn inflation":

- GDP growth: 2025 is expected to be lowered from 2.1% to 1.7%;

- Inflation expectations: 2025 PCE inflation revised up to 2.7% from 2.5% and core PCE inflation to 2.8% from 2.5%;

- Unemployment rate: edged up 0.1% to 4.4%, reflecting marginal labor market loosening.

Key Interpretation:

- Stagflation: slowing growth and inflationary pressures go hand in hand, potentially limiting the Fed's policy flexibility.Powell acknowledged the short-term impact of tariffs on commodity inflation, but said "the impact is difficult to assess", suggesting that policy will not be adjusted for the time being as a result.

- Long-term confidence: 2026 inflation expectations are still anchored at 2.2%, indicating that officials believe that inflation will eventually come down, but the market is skeptical of the expression "transitory" (transitory) (the shadow of miscalculation during the epidemic is still present).

4. Statement wording change: shift to "uncertainty-led"

Importance: ★★★★★☆☆☆☆

Key changes to the conference statement include:

- The addition of "increased uncertainty about the economic outlook";

- Deletion of the phrase "the risks to achieving the employment and inflation targets are broadly balanced";

- Emphasize "focus on the two-way risks of the dual mandate (employment and inflation)".

Key Interpretation:

- Signal of policy shift: The adjustment of the wording reflects the Fed's shift from "manageable risks" to "high uncertainty", leaving room for flexible policy adjustments in the future.

- Market communication strategy: Powell downplayed the significance of the deletion ("deleted is deleted") at the conference to avoid over-interpretation, but the market still sees this as a signal of weakening confidence in the resilience of the economy.

Dot plot:

Economic Forecast:

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