Core Viewpoint - The article discusses the potential for the Federal Reserve's benchmark interest rate to return to zero, highlighting the uncertainty surrounding future interest rates and the implications for monetary policy [3][4][6]. Group 1: Interest Rate Projections - Research indicates a 9% probability that the federal funds rate will hit the "zero lower bound" within the next seven years, with current interest rate uncertainty being a significant factor [4]. - The likelihood of rates returning to zero within the next two years is estimated at 1% [6]. - The Federal Reserve has raised the federal funds rate target range to 5.25%-5.5% from March 2022 to July 2023, moving significantly away from the zero lower bound [7]. Group 2: Market Expectations and Economic Indicators - Market discussions are ongoing regarding the timing of potential interest rate cuts and the terminal rate level, with Goldman Sachs economists predicting a possible rate cut in September [8]. - Goldman Sachs has revised its forecast for the terminal federal funds rate down to 3%-3.25%, which remains above the zero lower bound [9]. - The chief U.S. economist at Goldman Sachs estimates a slightly higher than 50% chance of a rate cut in September, with further cuts expected in October and December [8][10].

Core Insights - Federal Reserve researchers, including New York Fed President John Williams, concluded that the Fed cannot assume its benchmark interest rate will remain far from zero in the future [1][3] - There is a 9% probability that the federal funds rate will hit the "zero lower bound" in the next seven years, with current rate uncertainty exacerbating this risk [3][4] - The analysis indicates that market expectations regarding interest rates are the primary driver of fluctuations in the zero lower bound risk [4] Interest Rate Projections - The probability of rates returning to zero in the next two years is only 1%, with historical context showing rates were at 0% to 0.25% during the 2008 financial crisis and again during the COVID-19 pandemic [5] - From March 2022 to July 2023, the Fed raised rates 11 times, bringing the target range to 5.25% to 5.5%, significantly distancing from the zero lower bound [5] - Currently, the Fed has maintained rates between 4.25% and 4.5% since September of the previous year, with discussions ongoing about potential rate cuts [5] Market Reactions and Predictions - Former Fed Governor Kevin Warsh expressed sympathy for the President's frustration with the Fed's current rate policy, suggesting that rates should be lowered further [6] - Goldman Sachs economists predict a likelihood of rate cuts in September, citing smaller-than-expected impacts from tariff policies and stronger deflationary forces [6][7] - Goldman Sachs has adjusted its forecast for the terminal federal funds rate down to 3% - 3.25%, still above the zero lower bound, while maintaining a long-term view on neutral rates and economic conditions [7]

Group 1 - The Federal Reserve cannot assume that its benchmark interest rate will not drop to zero again in the future, with a 9% probability of hitting the "zero lower bound" within the next seven years [1] - Current interest rate uncertainty is a significant factor contributing to this risk, with expectations for future rates remaining high compared to the past decade [1] - The analysis is based on interest rate derivatives linked to short-term key rate expectations, such as the Secured Overnight Financing Rate [1] Group 2 - There is a 1% probability that interest rates will return to zero within the next two years, following the Fed's previous rate cuts during the 2008 financial crisis and the COVID-19 pandemic [2] - Since March 2022, the Fed has raised the federal funds rate target range to 5.25% to 5.5% in response to high inflation, moving significantly away from the zero lower bound [2] - Discussions are ongoing regarding the timing of potential rate cuts and the level of the terminal rate, with recent comments indicating frustration from the President regarding the Fed's current policy stance [2] Group 3 - Goldman Sachs economists now expect the Fed to potentially cut rates in September, three months earlier than previously predicted, due to lower-than-expected impacts from tariff policies and signs of a slowing job market [3] - The likelihood of a rate cut in September is estimated to be slightly above 50%, with expectations for cuts of 25 basis points in September, October, and December [3] - Goldman Sachs has revised its forecast for the terminal federal funds rate down to 3% to 3.25%, indicating a shift in expectations while maintaining that the economy could still achieve maximum employment and 2% inflation [3]

Market Overview - US stock indices showed mixed performance with the Dow Jones up 0.65%, Nasdaq down 0.18%, and S&P 500 up 0.41% [1] - The VIX index decreased by 4.24% to 17.83, indicating reduced market volatility [1] - The US dollar index fell by 0.23% to 100.83, while the yield on the 10-year Treasury bond dropped by 2.399% to 4.435% [1] - Spot gold increased by 1.96% to $3239.58 per ounce, while Brent crude oil fell by 1.87% to $64.58 [1] Industry & Stocks - In the industry sector, all S&P 500 sectors except semiconductors, which fell by 0.64%, recorded gains, with utilities and consumer staples leading at 2.13% and 2.05% respectively [3] - Chinese concept stocks mostly declined, with KWEB down 2.64% and Alibaba down 7.87%, reporting Q4 revenue growth of only 7% year-on-year [3] - Major tech stocks saw mixed results, with Microsoft up 0.23% and Nvidia down 0.38%. Berkshire Hathaway significantly increased its Alibaba holdings by 21 times while reducing its Nvidia stake [4][10] Focus on Companies - UnitedHealth Group's stock dropped by 10.93% amid an investigation by the US Department of Justice into its billing practices, which the company claims it was unaware of [5][6] - Walmart reported Q1 revenue of $165.6 billion, slightly below expectations, but adjusted EPS exceeded forecasts at $0.61. The company anticipates a 3.5% to 4.5% increase in net sales for Q2 [8] - Berkshire Hathaway's Q1 report revealed significant sell-offs in bank stocks, maintaining its position in Apple, while increasing stakes in other sectors like beverages and oil [9] Trade and Tariff Developments - Japan is seeking to hold a third round of trade negotiations with the US next week, while the EU and US are accelerating trade talks, aiming for greater tariff reductions than those with the UK [7] - Following recent tariff adjustments, container shipping rates from China to the US have surged, with bookings increasing by nearly 300% [12][13]

Core Viewpoint - The Federal Reserve is considering adjustments to its monetary policy framework, particularly regarding its views on employment shortfalls and achieving inflation targets [1][2]. Group 1: Monetary Policy Framework Review - Federal Reserve officials have initiated a review of the long-term strategy for implementing monetary policy, which includes the communication tools used to guide the Federal Open Market Committee (FOMC) in achieving price stability and maximum employment [1][2]. - The current framework was designed during a period of low interest rates and low inflation, and there is a need to ensure that any new consensus statement can adapt to a wide range of economic conditions [1][2]. Group 2: Inflation Targeting - The Federal Reserve's inflation target remains set at 2%, with a focus on anchoring long-term inflation expectations around this target [2]. - The review will reflect the significant changes in the economic environment since 2020, indicating that the previous assumptions about the zero lower bound on interest rates are no longer fundamental [2]. Group 3: Employment Shortfall Definition - The review has led to an adjustment in the definition of "employment shortfall," shifting the focus to periods of high unemployment rather than equally weighing high and low unemployment rates [2]. - This change reduces the tendency for preemptive interest rate hikes aimed at cooling the labor market before inflation pressures arise [2]. Group 4: Response to Inflation - The Federal Reserve's previous framework has been criticized for not responding timely to inflation post-pandemic, with some observers suggesting that the focus on employment targets contributed to this delay [2][3]. - Powell refuted claims that the policy framework caused a lag in response, stating that officials initially judged the inflation caused by the pandemic to be temporary [3]. Group 5: Timeline for Review Completion - The Federal Reserve intends to complete the current framework review by the end of summer this year [4].

Core Viewpoint - The Federal Reserve Chairman Jerome Powell stated that the zero lower bound on interest rates remains a risk that should be addressed within the framework, but given the current policy interest rate levels, the zero lower bound is no longer a fundamental concern [1] Group 1 - The zero lower bound on interest rates is acknowledged as a risk that needs to be managed [1] - Current policy interest rates indicate that the zero lower bound is not a pressing issue at this time [1]