Powell: Do not move!

The “Super 24 Hours” for global central banks is underway, and now the spotlight is on Powell.

From Wednesday evening to Thursday evening Beijing time, the G7 central banks will release their interest rate decisions in quick succession. Markets generally expect no change in rates, but the wording of policy statements and forward guidance on the rate path will be key signals.

Last night, the Federal Reserve’s March FOMC meeting concluded with a vote of only one dissent, deciding to keep the benchmark interest rate unchanged at 3.50%-3.75%, in line with market expectations.

What exactly was discussed? How will it impact the future? Let’s break it down simply.

In one sentence: The Fed’s meeting kept rates steady, but their tone was very firm—cutting rates will come later and be fewer than everyone thought.

What did the Fed do this time?

In plain language, they didn’t raise or cut rates, keeping them at 3.50%-3.75%. Only one person wanted to cut, others agreed to hold steady, showing even more consensus than before.

What did Powell say?

First, if inflation doesn’t come down, I won’t cut rates. Tensions in the Middle East have pushed oil prices higher, directly raising overall prices; the AI-driven data center boom is also marginally increasing inflation pressures. Powell emphasized that as long as inflation doesn’t show sustained, clear decline, rate cuts are off the table. Given the current energy price increases and sticky inflation, the Fed’s stance will be more cautious, delaying easing significantly.

Second, the economy is okay, not collapsing. Employment is a bit weak but not dangerously so. He believes: inflation risk > unemployment risk. Regarding recent employment data, Powell admitted job growth is indeed soft, but he doesn’t see this softness reaching dangerous levels; the overall labor market remains resilient. In his view, in the current economic environment, the risk of inflation outweighs the risk of rising unemployment, so the Fed won’t loosen policy prematurely to offset mild employment weakness.

Third, I’m staying put for now; policy won’t be chaotic. Amid internal investigations at the Fed, Powell took a very firm stance, clearly stating he will remain until the investigation is transparent and concluded, ensuring policy continuity and stability, with no decision-making chaos.

The meeting also mentioned that the impact of new Middle East tensions on the U.S. economy remains uncertain, highlighting external risks. The Fed is balancing inflation control and employment stability, with geopolitical conflicts pushing inflation higher and hampering growth. Policy direction awaits clearer signals by mid-year.

How are economic forecasts changing?

The Fed has raised its outlook on several key indicators: economic growth (better than expected), inflation (higher than expected), and the long-term neutral interest rate (future rates will be slightly higher).

In this meeting, the Fed upgraded multiple economic forecasts, believing the economy is more resilient than previously thought, and also revised inflation expectations upward, indicating stronger price pressures to come. Additionally, they increased their estimate of the long-term neutral rate, suggesting future interest rates will be slightly higher than before. Overall, the Fed’s outlook on the economy and inflation is more optimistic, implying rates may stay high for longer.

What’s the impact on the markets?

This Fed meeting was more hawkish than expected.

For U.S. Treasuries, expectations of rate cuts will diminish, and both long- and short-term yields face upward risks.

For U.S. stocks, given high oil prices and sustained high rates, market momentum is limited, and valuations and profits may face short-term constraints.

A relatively stable point is that Powell’s clear commitment to stay until the investigation ends ensures policy stability.

With the Fed’s policy stabilizing, investors might consider these assets —

Gold: After a sharp correction due to hawkish signals and risk aversion, short-term pressure from the dollar and Treasury yields remains, but geopolitical risks and the “de-dollarization” trend still support gold. Consider buying opportunities in gold ETFs like Guotai (518800) on dips.

Hong Kong stocks: External liquidity easing expectations are delayed, but valuations remain attractive. If rate cuts resume later, capital inflows could follow. Watch for Hong Kong tech ETFs like Guotai (513020).

A-shares: Overseas liquidity easing is paused; domestic policies and industry fundamentals dominate. Focus on sectors benefiting from PPI turning positive, such as livestock ETFs (Guotai 159865), ChiNext new energy ETFs (Guotai 159387), and building materials ETFs (Guotai 159745), which are more cyclical.

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