Powell's "wait-and-see" stance makes it difficult to reconcile market differences; Wall Street debates fiercely whether to cut rates twice or not at all

According to the Zhitong Finance APP, the Federal Reserve maintained interest rates on Wednesday, with policymakers suggesting that rate cuts may still be possible this year. However, the anticipated inflation increase due to the Trump administration's tariff plans has slowed the overall pace of future rate cuts. In the latest economic forecast, officials outlined a picture of moderate stagflation in the U.S. economy: economic growth is expected to slow to 1.4% this year, the unemployment rate is projected to rise to 4.5% by the end of the year, and the inflation rate is expected to settle at 3% by 2025, significantly higher than current levels. The dot plot indicates divisions within the committee, and market analysts have differing opinions.

Although policymakers still expect a 50 basis point rate cut this year (consistent with predictions from March and December), they have slightly slowed the pace in the long battle to bring inflation back to the 2% target—projecting rate cuts of 25 basis points in both 2026 and 2027.

In terms of market reaction, the S&P 500 index (.SPX) briefly expanded its gains before retreating, ultimately rising by 0.03%; in the bond market, the yield on the 10-year U.S. Treasury narrowed its decline, falling by 1.2 basis points to 4.379%; the yield on the 2-year U.S. Treasury fell by 1.9 basis points to 3.914%; in the currency market, the U.S. dollar index initially fell before rising, increasing by 0.21% to 99.07 as of the time of writing, while the euro fell by 0.25% against the dollar to 1.1454.

In response to this dynamic, analysts have also expressed their views:

Sahak Manuelian, Managing Director of Global Equity Trading at Wedbush Securities

"The policy statement is consistent with previous signals. Inflation remains high, but the impact of tariffs will be a variable in the coming months. Powell stated that if it weren't for the tariff factors, the Fed would have already cut rates. The market's retreat before the close is not surprising."

R. Burns McKinney, Portfolio Manager at NFJ Investment Group

"Investors were already aware that rates would remain unchanged, but the focus is on the Fed's forecast for rate cuts by the end of the year. The previous dot plot predicted two rate cuts, and investors were concerned it might be reduced to one, but Powell's team maintained the expectation of two cuts, which aligns with market expectations.

However, Powell mentioned that the FOMC raised its inflation forecast for the end of the year while lowering its GDP growth guidance for the year. The slowdown in growth may be the reason for maintaining the original forecast, but investors are worried that a higher inflation outlook means fewer rate cuts in the future."

Nate Kush, Portfolio Manager at Neuberger Berman

"The Fed's rate decision and outlook indicate that the impact on growth and inflation may not be as severe as the concerns following the 'Liberation Day' in April. The Fed seems to agree with my view: even if the inflation impact has not fully manifested, its inflation shock may be controllable and temporary.

While acknowledging the recent rise in geopolitical risks, macro risks have diminished, as evidenced by improved financial conditions and narrowing credit spreads. After the uncertainty caused by the April tariffs, we increased credit risk assets such as high-yield bonds in our portfolio, and even with the recent market rebound, we still believe maintaining an overweight position is reasonable."

Andrew Wells, Chief Investment Officer at Sanjac Alpha

"We immediately assess this as a hawkish signal. Although the median in the dot plot remains unchanged, a closer look reveals that more Fed officials are inclined not to cut rates this year compared to the March meeting, with the number expecting one or two cuts decreasing." The median remains unchanged, but the voting tendency is clearly hawkish, so I was surprised that the market initially interpreted it as dovish.

Powell's speech further confirmed this: he stated that he expects significant inflation in the economy, mainly due to tariff uncertainties, and that the Federal Reserve is in no rush to cut interest rates or take coordinated action. We previously anticipated one rate cut this year and still maintain that judgment, possibly in October or later. However, the median forecast and federal funds futures still expect two rate cuts, and we hold a different view."

Molly Brooks, TD Securities U.S. Interest Rate Strategist

"The market reaction has been mild, although economists have differing views on the 2025 dot plot regarding one or two rate cuts. The market does not seem to view the maintenance of the two rate cut expectation as a dovish signal, partly because the policy statement continued the Federal Reserve's consistent wait-and-see tone.

The 2025 dot plot also has a time decay factor: compared to March, there are fewer remaining meetings in 2025, and the next Economic Projections meeting will have even fewer occurrences, so if there are no rate cuts, the expectations for rate cuts will continue to be pushed back to 2026."

Jack McIntyre, Brandywine Global Fixed Income Portfolio Manager

"The economy still shows signs of stagflation—slowing growth accompanied by sticky inflation rising. The Federal Reserve remains patient and is still inclined to cut rates in the near term."

Michael James, Rosenblatt Securities Equity Trader

"The policy statement had little surprise. The Federal Reserve raised its inflation expectations (clearly to conservatively assess the potential impact of tariffs) and slightly lowered its growth forecast, which was expected and did not contain any disruptive information. The key details lie in Powell's responses and body language during the press conference."

Peter Cardillo, Spartan Capital Securities Chief Market Economist

"The Federal Reserve believes that economic growth is slowing but remains fundamentally strong, and the unanimous vote to keep rates unchanged is not surprising. The dot plot expects two rate cuts this year and reiterates that it will reassess its monetary policy stance if necessary.

This situation is not new, and there has not been much change on our end. We believe the statement is slightly hawkish, consistent with last month's tone, but we need to be cautious about potentially seeing an economic slowdown. There has also been no change in thoughts regarding the labor market.

If the economy slows too quickly over the summer or if there is negative growth this quarter, the Federal Reserve may cut rates by 50 basis points in September in one go, rather than two cuts of 25 basis points each. We believe these will have limited impact on the market."

Brian Jacobsen, Annex Wealth Management Chief Economist

"There is a subtle change in the wording regarding the unemployment rate; the Federal Reserve is no longer confident that the unemployment rate has stabilized, and the risk balance has shifted from neutral to leaning towards economic slowdown. The Federal Reserve is no longer fixated on inflation like a hawk but is turning its attention to the labor market.

With tightening immigration policies and a declining labor force participation rate, the unemployment rate will no longer be a reliable indicator of labor market health. Powell may follow Yellen's lead and begin discussing a range of broad labor market indicators that they monitor." Matthias Scheiber, Head of Multi-Asset Team at Allspring Global Investments

"Given the ongoing uncertainty around tariffs and the still robust U.S. labor market, the Federal Reserve is taking a wait-and-see approach as expected. We believe the next possible window for interest rate cuts could be in September, and if inflation continues to fall towards the 2% target, we expect two rate cuts this year.

Stock market performance will remain volatile, considering better valuations, potential for more fiscal and monetary stimulus, and the relatively high valuations of some large-cap U.S. stocks. We continue to be optimistic about sectors with lower valuations in the U.S. stock market, international stocks, and emerging market stocks. Given that overall yields remain attractive, we maintain an optimistic outlook on high-quality bonds."