Four major factors constrain, and Powell has to "remain patient"?

Given the uncertainty surrounding the U.S. economic outlook, it may be correct for the Federal Reserve to remain patient.

Previously, the market expected the Federal Reserve to cut interest rates in June, with a reduction of 75 to 100 basis points by the end of the year. However, Federal Reserve Chairman Jerome Powell's remarks last week doused the market's optimism, warning of the inflation and economic dilemmas posed by Trump's tariff policies, reiterating the need to wait and see before taking action.

On Monday, media reports analyzed that persistent high inflation, declining economic growth potential, and exceptionally uncertain economic prospects, combined with the potential threat to central bank independence posed by Trump, have forced the Federal Reserve to "stay put."

Analysts expect that high uncertainty may lead Federal Reserve officials to remain inactive for months, making it more likely that there will be no interest rate cuts or only modest cuts this year, rather than starting to cut rates in June.

If employment issues deteriorate sharply, the Federal Reserve may take aggressive action, with the key indicator being the unemployment rate. If the unemployment rate exceeds 4.5%, it will trigger the Sam Rule, indicating that the economy may be heading into recession. Although this rule sent false signals last year, the situation is different this year. The rise in unemployment last year was due to rapid labor force growth rather than a slowdown in hiring; this year, the rise in unemployment is due to a decline in hiring rates and an increase in layoffs, making the signal more reliable.

Reason One: Exceptionally Dim Economic Outlook

Analysis indicates that the rapid increase in U.S. tariffs, far exceeding the expectations of Federal Reserve officials, is historically unprecedented, and the broader environment facing the U.S. economy is more confusing than ever.

Although the unemployment rate remains relatively low at 3.8%, recent inflation data is quite concerning. The core PCE in March may approach an annualized rate of 4%, far above the Federal Reserve's target of 2%.

As households and businesses anticipate future price increases, advance purchases may temporarily boost economic growth. In March, sales of automobiles and parts surged by 5.3%, marking the largest increase in two years.

Reason Two: The Decline in U.S. Economic Growth Potential is Critical

Secondly, the decline in U.S. economic growth potential is a serious issue that cannot be ignored. This is not just a short-term fluctuation but a structural challenge.

In the short term, rising import prices will harm productivity, prompting U.S. manufacturers to adjust their supply chains in search of lower-cost alternatives. In the long term, productivity will be impaired, and tariffs will lead to a restructuring of global supply chains.

A significant decline in labor force growth will also suppress economic activity. Higher deportation rates will constrain labor supply, and the expulsion of immigrants will harm productivity growth, as immigrants play a crucial role in sectors such as construction and agriculture.

The decline in U.S. economic growth potential is critical, meaning that a slowdown in economic growth may not lead to sufficient weakness in the labor market to warrant more monetary policy support. Although real GDP growth is expected to slow significantly this quarter, the current unemployment rate of 4.2% has changed little compared to last summer

Reason Three: Inflation Rate Will Exceed 2% Target for the Fifth Consecutive Year

The market has begun to accept a disturbing reality: the inflation rate will exceed the Federal Reserve's 2% target for the fifth consecutive year.

Analysis indicates that this poses a significant threat to the credibility of the Federal Reserve. If the Federal Reserve lowers interest rates too early and inflation accelerates again, it will severely undermine public confidence in the central bank's ability to control prices.

Currently, short-term inflation expectations have risen significantly, and the University of Michigan's monthly consumer confidence survey also shows a substantial increase in long-term expectations, but this has not been confirmed by the New York Fed's survey or the implied inflation rate of U.S. Treasury Inflation-Protected Securities (TIPS).

Reason Four: Trump's Threat to the Independence of the Federal Reserve

Although official statements never mention political factors, analysis suggests that Trump's attacks on the independence of the Federal Reserve may be a hidden but important consideration. Trump has repeatedly criticized Powell and the Federal Reserve's policies, openly expressing a desire to see lower interest rates.

In this context, the Federal Reserve may be more cautious, avoiding any actions that could be interpreted as yielding to political pressure. Maintaining the independence of monetary policy is crucial for the Federal Reserve to uphold its long-term credibility