Fed Watch (43): The Fed Is Powerless to Act

The Federal Reserve maintained its policy interest rate at 【3.50%, 3.75%】 as expected during the March meeting, and at the press conference, Powell also maintained his usual cautious tone—adhering to the principle of policy appropriateness under the dual mandate of “employment and inflation.”

However, the latest dot plot shows that the most aggressive rate cutter, Milan, has narrowed this year’s rate cut outlook by 50 basis points, while the dovish Waller and Bostic have returned to Powell’s camp. Meanwhile, the Fed has raised its medium-term interest rate forecast from 3.0%, stable for five quarters, to 3.125%.

From the signals released at this meeting, the Federal Reserve’s policy stance again tilts toward the inflation target, narrowing the scope and duration of rate cuts in this cycle, and has driven recent changes in the U.S. Treasury market. The near-term yields on U.S. Treasuries have risen more than the longer-term yields: 2-year yields up 28 basis points, 5-year 23 basis points, 10-year 16 basis points, and 30-year 9 basis points. This also reflects that although turbulence in the Gulf region may influence inflation expectations, the market has yet to reach a clear consensus on this in its pricing, resulting in no steepening of the yield curve driven by inflation expectations—long-term yields have risen more than short-term yields.

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