To The Moon

Overnight, the Federal Reserve maintained interest rates as anticipated, while announcing significant policy adjustments. According to the FOMC statement, beginning April 1st, the Fed will slow its balance sheet reduction pace, decreasing Treasury securities reduction limits from $25 billion/month to $5 billion/month, while maintaining the MBS reduction cap at $35 billion/month. The committee noted increased economic uncertainty but still forecasts two interest rate cuts this year, totaling 50 basis points altogether.

Benchmark Rate Unchanged, Balance Sheet Reduction Slowed, Two Rate Cuts - All Within Expectations

Fed Chairman Powell broke new ground in the press conference by addressing tariffs for the first time, acknowledging that Trump's policies are impacting the economy. He emphasized the Fed would cautiously avoid making definitive judgments about these effects due to exceptionally high uncertainty. Powell noted that policy changes, particularly in trade, will ultimately influence both economic conditions and the monetary policy trajectory, and the Fed is focusing on distinguishing between signal and noise as the economic outlook evolves. He indicated they are not rushing to adjust their stance and need to wait for greater clarity.

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Current market expectations still anticipate the Fed will maintain steady rates in May, with the earliest potential rate cut not coming until June. However, from my analytical perspective, one must question whether the US stock market can genuinely sustain itself from March through June - nearly an entire quarter. Conversely, if stocks falter, might Powell be forced to reconsider his approach? This decision to slow balance sheet reduction, effectively decreasing liquidity withdrawal from the market, certainly represents a positive development for US equities.

The Federal Reserve's dot plot reveals median expectations for the federal funds rate through 2027 at 3.9%, 3.4%, and 3.1% respectively, perfectly consistent with December's projections. This suggests only significant economic deterioration would prompt the Fed to substantially alter its outlook. From the Fed's perspective, a tariff war would boost inflation, but only temporarily without creating persistent effects, explaining why the dot plot remained unchanged.

The dovish stance presented overnight, with Powell reassuring markets, triggered a stock market rebound and benefited gold prices, with gold continuing to establish record highs this morning.

The Ball Is Now in Trump's Court

With the Fed holding steady, attention shifts to Trump's next move. Will he implement comprehensive tariffs on April 2nd as threatened? If tariffs remain the objective, they will almost certainly be imposed. But if implemented, will long-term inflation truly remain contained? Is the Federal Reserve demonstrating confidence or deliberately pressuring Trump? Can they not see that Americans can barely afford eggs?

Compared to Powell's tactical, noncommittal approach to rate cuts, Trump's position remains remarkably consistent and unequivocal. Trump posted on his social media platform Truth Social: "As US tariffs begin the transition to the economy (easing!), the Fed had better cut rates. Do the right thing. April 2nd is US Liberation Day!!"

Liberation Day?

Trump maintains that tariff policies can revitalize American manufacturing and reduce US dependence on imports, thereby "liberating" America. Economists, however, warn that Trump will likely trigger a prolonged global trade war, inflicting serious damage on the US economy.

From this perspective, either Trump or the economists will ultimately be proven wrong. Based on our long-term observation of Trump, the only force capable of halting his forward charge isn't Russia, and certainly not China, but the metaphorical "south wall" - he won't reconsider his approach until he faces the consequences directly.

Fitch Ratings downgraded its US economic growth forecast for this year from 2.1% to 1.7% this Tuesday, representing the latest pessimistic prediction. I suspect the Fed and Fitch may have coordinated their assessments, as the Fed similarly lowered its 2025 US GDP growth projection to 1.7%.

In my previous article "0319: Fed Expected to Hold Rates Steady, Terrifying Storm May Be Coming!" I mentioned a potential crisis looming on the horizon. My years of experience in financial markets have taught me that some crises don't materialize gradually - they erupt suddenly and unexpectedly, collapsing like an avalanche.

Conclusion

The Federal Reserve's decision to maintain current rates while slowing balance sheet reduction represents a cautious approach amid growing economic uncertainty. While Powell acknowledges the potential impact of Trump's policies, particularly regarding tariffs, the Fed remains committed to its projected rate cut trajectory. Meanwhile, Trump continues pressing for more accommodative monetary policy ahead of his threatened "Liberation Day" tariffs. As economic forecasts trend downward and unusual indicators like egg smuggling surge, markets remain on edge, aware that financial crises often emerge not gradually, but in sudden, catastrophic fashion.

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