The Federal Reserve holds steady, market focuses on interest rate cut expectations.

The ptfx foreign exchange is true or falseFederal Reserve is set to announce its latest rate decision on Wednesday, with the market widely expecting the benchmark rate range to remain unchanged at 4.25%-4.5%. Faced with slowing economic growth, trade policy uncertainty, and inflationary pressures, Fed officials are cautiously assessing the policy path.

Although inflation remains above the 2% target, recent economic data reflects a cooling of U.S. economic activity. Policymakers need more time to observe market dynamics to ensure the rationality of policy adjustments. Diane Swonk, Chief Economist at KPMG, stated: "The Fed's policy path remains uncertain, with a significant gap between market expectations for rate cuts and the Fed's cautious stance."

Inflation and Economic Slowdown Pose a Dilemma for the Fed

Latest data shows a decline in U.S. consumer confidence, increased stock market volatility, and further heightened concerns about economic prospects due to trade policy uncertainty. Market surveys indicate that Fed officials predicted two rate cuts in 2025 last December, but the current economic situation may prompt them to adjust expectations.

Kathy Bostjancic, Chief Economist at Nationwide, noted: "The degree of rate cuts anticipated by the market far exceeds the Fed's official forecasts. Despite slowing economic growth, the Fed remains more concerned about inflation risks and may not shift to an accommodative policy in the short term."

Trade Policy and Inflation Expectations as Key Factors in Rate Decisions

Recently, changes in U.S. trade policy have become a market focal point. New tariff measures could impact supply chains and affect economic data in the coming months. Meanwhile, long-term inflation expectations have risen for three consecutive months to a 30-year high, making it more challenging for the Fed to swiftly adjust its policy stance.

Some analysts believe the Fed may view the impact of trade policy as a short-term factor rather than a driver of long-term inflation. However, if consumer confidence continues to decline and economic growth prospects worsen, the Fed may reassess the urgency of rate cuts.

Balance Sheet Adjustments May Become a Market Focal Point

Currently, the Fed is advancing its quantitative tightening (QT) policy, tightening liquidity by reducing its bond holdings on the balance sheet. However, the market expects the Fed may slow down or completely halt this process in the coming months to address potential liquidity issues in the financial market.

"If significant pressure emerges in the bond market, the Fed may need to adjust its balance sheet policy, indirectly affecting the path of interest rates," a Wall Street strategist said.

Market Awaits Powell's Remarks for Policy Signals

After the Fed's decision, Chairman Powell will address questions about the rate path, the impact of trade policy, and economic prospects in a news conference. The market will closely watch his comments to determine if the Fed might initiate rate cuts later this year, or maintain the current policy stance until inflation further declines.

Overall, the Fed faces a complex policy environment where slowing economic growth and inflationary pressures coexist, necessitating careful consideration in rate decisions. In the coming months, the actual impact of trade policy, the recovery of consumer confidence, and inflation trends will be key factors determining rate adjustments.

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.