Jin Shi Shu Ju·2025-05-07 06:38Core Viewpoint - The Federal Reserve is expected to maintain interest rates between 4.25% and 4.50% during the upcoming meeting, with a low probability of a rate cut in the near term, reflecting a cautious stance amid economic uncertainties [2][3][6]. Interest Rate Decision - The market anticipates a 2% chance of a 25 basis point rate cut in the upcoming meeting, with an overall expectation of 72 basis points of cuts throughout the year [2]. - Following a strong employment report, major banks like Goldman Sachs and Barclays have pushed back their rate cut predictions from June to July [2]. Economic Assessment - Morgan Stanley suggests that the Fed may downgrade its economic activity assessment from "sustained robust expansion" to "slowing growth" [3]. - The divergence between "soft data" (surveys) and "hard data" (actual economic indicators) is notable, with soft data showing deterioration while hard data remains resilient [6][10]. Inflation and Policy Stance - Many officials describe the current policy stance as "moderately tight," with some considering it "significantly tight" [9]. - The Fed is closely monitoring long-term inflation expectations, which remain stable, providing some reassurance [8]. Internal Disagreements and External Pressures - There is a mix of opinions within the Fed, with some officials advocating for a wait-and-see approach while others, like Waller, lean towards a more dovish stance [7]. - President Trump continues to exert pressure on the Fed to lower rates, emphasizing that the Fed's actions have been too slow [7]. Market Reactions - In the foreign exchange market, tactical buying of the dollar is suggested, although the impact of the Fed on currency markets is expected to be limited [12]. - In the stock market, there is a belief that the market has fully priced in the baseline predictions, but risks of recession remain significant, with a 45% probability assessed by the U.S. team [13].