In the past week, global financial markets experienced turbulence amid the complex signals from the Federal Reserve's latest monetary policy decision and its economic forecasts. The Fed maintained the federal funds rate at 4.25%-4.5% during the March meeting while updating the Summary of Economic Projections (SEP) to include the possibility of stagflation risks. This statement seems to starkly contrast with Fed Chairman Jerome Powell's optimistic assurances about the robustness of the U.S. economy. Meanwhile, uncertainty in global markets intensified as the Trump administration plans to implement extensive reciprocal tariffs before the April 2 deadline. In the new week, investors will closely monitor a series of key economic data and statements from Fed officials to seek clues about future policy directions. This article will delve into the Fed's current stance, the divergence in market expectations, and the potential impact of upcoming economic data on global financial markets.

Fed Decision: Caution and Optimism Coexist

The outcome of the Fed's March meeting was within market expectations, but the signals behind it sparked widespread discussion. The Federal Open Market Committee (FOMC) unanimously decided to keep the interest rate in the 4.25%-4.5% range, marking the second consecutive time it has held steady. However, the latest dot plot indicates that Fed officials expect to cut rates twice within 2025, each by 25 basis points, totaling 50 basis points of easing, consistent with the forecast from December of last year. Nevertheless, Powell emphasized in the post-meeting press conference that the current economic uncertainty is "exceptionally high," particularly regarding the potential impacts of the Trump administration's new policies. This statement was interpreted by the market as the Fed's reserved attitude towards aggressive rate cuts in the short term.

It is noteworthy that the Fed raised its inflation expectations in the latest economic forecast while lowering its growth projections. The inclusion of stagflation risks has left investors uneasy. Data shows that the Fed expects the core PCE price index (a measure of inflation excluding food and energy) to remain around 2.6% by 2025, higher than previously expected, while GDP growth expectations were downgraded from 2.5% to 2.3%. Powell attempted to alleviate market concerns, stating that the U.S. economy remains "robust," the labor market is resilient, and although inflation is above the 2% target, it is still within a controllable range. However, this cautiously optimistic tone has not fully quelled market worries about an economic slowdown.

Market Expectations: Dovish Bets Heat Up

Despite the Fed signaling that it is not in a hurry to cut rates, the market's interpretation leans more dovish. Investors generally believe that the Fed may have underestimated the extent of the U.S. economic slowdown and are betting that there could be three rate cuts this year, totaling 75 basis points. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the market's expectation of a return to rate cuts in June has risen to 62%, a significant increase from a month ago. Behind this divergence in expectations is concern that Trump's tariff policy could trigger inflationary pressures and hinder economic growth.

The Trump administration plans to implement reciprocal tariffs on major trading partners on April 2, a policy believed to potentially raise the prices of imported goods, thereby exacerbating inflation. At the same time, tariffs could suppress global trade activity, negatively impacting U.S. export-oriented industries. Wall Street analysts point out that if tariffs are fully implemented, the U.S. economy may face the risk of "stagflation," where growth stagnates while inflation rises. In this scenario, the Fed may be forced to cut rates more quickly and significantly to stimulate the economy.

Additionally, market attention is also increasing regarding the internal disagreements within the Fed. The latest dot plot shows significant differences among FOMC members regarding the projected interest rate levels by the end of 2025, ranging from 3.75% to 4.5%. This divergence reflects differing judgments among officials about the economic outlook and policy path. For instance, New York Fed President John Williams, a permanent voting member of the FOMC, often provides a directional signal with his remarks. He is scheduled to speak on Tuesday, and the market is eager to glean the Fed's internal stance on the pace of rate cuts.

Key Data Preview: Economic Slowdown or Continued Resilience?

In the new week, the market will welcome a series of significant economic data, which will serve as important benchmarks for assessing the Fed's forecasts and market expectations. Here are the key points to watch this week:

• Monday (March 24) 21:45: U.S. February S&P Global Manufacturing and Services PMI final values. As a leading indicator of economic activity, PMI data will reveal whether the manufacturing and services sectors continue the weak trend seen at the beginning of the year. If the data falls below expectations, it may reinforce market concerns about an economic slowdown.
• Tuesday (March 25) 22:00: U.S. March Conference Board Consumer Confidence Index and Richmond Fed Manufacturing Index. Consumer confidence is a key indicator of consumer spending, which accounts for nearly 70% of U.S. GDP. A decline in the confidence index may signal a weakening of personal consumption expenditures in the coming months.
• Thursday (March 27) 20:30: U.S. Q4 real GDP annualized quarterly rate final value, real personal consumption expenditures quarterly rate final value, and core PCE price index annualized quarterly rate final value. These data will conclude the economic performance for 2024. If GDP growth is below expectations or core PCE inflation is above expectations, it may further support the market's bet on three rate cuts.
• Thursday (March 27) 20:30: U.S. initial jobless claims for the week ending March 22. The labor market is a core consideration for the Fed's decision-making. If initial claims unexpectedly rise, it may indicate that the labor market is cooling, providing more reasons for a rate cut.
• Friday (March 28) 20:30: U.S. February core PCE price index year-on-year, personal spending month-on-month, and core PCE price index month-on-month. As the inflation indicator most closely watched by the Fed, core PCE data will directly impact market expectations for a rate cut in June. If inflationary pressures ease, the likelihood of a rate cut will further increase.

These data will not only provide clues for the Fed's future policy path but will also serve as important references for global investors to adjust their asset allocations. Especially in the context of the impending implementation of Trump's tariff policy, the market's sensitivity to economic growth and inflation is at an all-time high.

More detailed and up-to-date data can be found on AiCoin: Data Section

Global Market Turbulence: The Dual Game of Tariffs and the Fed

The Fed's monetary policy and Trump's tariff plans represent the two major sources of uncertainty in the current global financial markets. Since the March meeting, U.S. stocks, bond markets, and foreign exchange markets have all experienced significant volatility. The S&P 500 index rebounded after the decision day, achieving the best performance on a Fed decision day since 2022, reflecting the market's optimistic interpretation of the "dovish" signals. However, the yield on the U.S. 10-year Treasury bond climbed above 4.3%, reflecting investors' concerns about inflation expectations. The dollar index slightly retreated after the decision but remained near its high for the year.

Meanwhile, the global market's reaction to Trump's tariffs has been more complex. Asian and European stock markets generally faced pressure, especially export-oriented economies like China, Japan, and Germany, which performed poorly due to concerns about a trade war triggered by tariffs. Gold prices continued to rise amid increasing uncertainty, with spot gold prices stabilizing around $3030 per ounce, just a step away from historical highs.

Market analysts point out that the Fed's cautious stance may not fully offset the shocks brought by tariff policies. Rabobank senior strategist Jane Foley stated that if tariffs lead to sustained inflation, the Fed may only cut rates once in 2025 or even pause the easing cycle. However, if the economic slowdown exceeds expectations, the Fed may be forced to take more aggressive rate-cutting measures, making the market's expectation of three rate cuts a reality.

Outlook and Prospects

As the Fed enters a period of observation, global financial markets will turn their attention to the upcoming economic data and the specific implementation of Trump's tariff policy. Investors face a complex game: on one hand, the Fed's steady statements aim to stabilize market confidence; on the other hand, external policy risks and the uncertainty of economic data may compel the Fed to adjust its stance.

For ordinary investors, the coming months will be a challenging period. The performance of economic growth data will be key in determining the pace of Fed rate cuts. If the U.S. economy slows as the market expects, the likelihood of three rate cuts will significantly increase, benefiting stocks and safe-haven assets like gold. However, if stagflation risks become a reality, the Fed may find itself in a dilemma, further exacerbating market volatility.

In summary, the tug-of-war between the Fed's dovish expectations and cautious realities has only just begun. The economic data and officials' statements in the new week will provide new clues for this game, while global investors will need to seek balance and opportunities amid the turbulence.

This article represents the author's personal views and does not reflect the stance and views of this platform. This article is for informational sharing only and does not constitute any investment advice to anyone.

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