Fed Rate Cut Expectations Pushed Back, Domestic Substitution and Domestic Demand-Driven Themes Show Stronger Independence

Why has inflation stickiness become the main obstacle for the Federal Reserve to cut interest rates?

On March 19, the Federal Reserve announced the results of the March policy meeting, maintaining the federal funds rate at 3.5%-3.75%. No adjustments were made for two consecutive meetings, in line with market expectations.

The March policy decision fully met market expectations. The FOMC vote was 11:1, with only one member advocating a 25 basis point cut. The overall policy stance remains hawkish.

The key points of the meeting are clear and comprehensive, including four aspects:

First, interest rate policy remains stable, continuing the “wait-and-see” approach since the end of 2025;

Second, economic and inflation expectations have been revised upward. The Fed raised its 2026 US GDP growth forecast from 2.1% to 2.4%, and core PCE inflation expectations from 2.8% to 3.0%, highlighting persistent inflation, especially due to rising energy prices;

Third, the pace of rate cuts this year has been clearly delayed. The dot plot indicates only one rate cut of 25 basis points this year, down from two cuts expected in December, with the timing likely postponed to Q4 2026;

Fourth, geopolitical and risk factors were mentioned. For the first time, the statement explicitly referenced energy price fluctuations caused by Middle East conflicts, global supply chain uncertainties, and the tight US labor market supporting inflation, becoming important variables influencing future monetary policy adjustments.

Looking ahead, the Fed’s monetary policy will remain cautious and data-dependent, primarily anchored to inflation figures and economic resilience. If core PCE inflation continues to fall below 2.5%, there may be a slight early move to cut rates. Conversely, if inflation rebounds or economic growth exceeds expectations, room for rate cuts will further shrink. The global easing cycle will be delayed overall, cross-border capital flows will become more cautious, and the attractiveness of US assets will remain strong in the short term.

Specifically for the A-share market, the March rate decision was hawkish, which may lead to increased volatility in northbound funds. Valuation-led blue chips, export manufacturing, and oil and gas resources are relatively resilient. Domestic monetary policy will adhere to a “self-reliant” approach, mainly using structural tools to maintain reasonable liquidity. Interest rate-sensitive sectors will face limited external constraints, with a stronger independence of domestic substitution and domestic demand-driven themes, and less external policy disturbance. (Everbright Securities Micro News)