Tonight, all eyes will be on Federal Reserve Chairman Powell. He will attend the Chicago Economic Club event and deliver a speech at 1:30 AM Beijing time on April 17th. Global investors, analysts, and market participants are waiting for Powell's response to recent economic developments.
Interestingly, the venue for Powell's speech is the same place Trump visited in October 2024, where he discussed high tariffs and the replacement of the Fed Chairman. Although the US has temporarily suspended tariffs on over 75 countries for 90 days, the overall economic outlook remains uncertain, with market concerns about a US recession heating up.
Powell's speech today will undoubtedly provide crucial insights into the economic situation, tariff impacts, and interest rate trends for 2025. The market will focus on three key questions:
· Facing Trump's tariff policies and White House leadership pressure, how will the Federal Reserve maintain its tradition of independent decision-making?
· With inflation declining but recession risks increasing, will Powell's rate cut expectations change?
· As the internal "hawk-dove debate" intensifies, will the aggressive rate cut proposals by officials like Waller influence the decision?
In previous speeches, Powell stated that Trump's tariff increases far exceeded the Fed's expectations and could have a more significant economic impact than anticipated. Therefore, he believes that recent policy impacts are highly uncertain, and he will wait for clearer information before making further adjustments. He emphasized that the current policy stance is good, can adopt a wait-and-see approach, and remains moderately restrictive. Regarding the possibility of an economic recession, he noted that the Fed has not made probability predictions, but external forecasting institutions have increased this likelihood. On rate cut expectations, Powell has not changed his view from the March meeting, believing that weak economic growth and rising inflation will offset each other, maintaining the expectation of two rate cuts in 2025.
Powell is facing "rate cut" pressure from multiple sides. US inflation seems to be gradually declining. The latest March CPI data shows a further downward trend in inflation. Meanwhile, Trump has consistently supported low-interest-rate policies, which now create trouble for Powell. A quick and significant rate cut could reignite inflation, but delaying rate cuts might drag down the US economy.
Powell and most Fed officials still believe now is not the right time for rate cuts. Although the US economy is showing signs of weakness, especially in the job market, the Fed seems inclined to maintain stable policy rates to prevent a new round of inflation from Trump's tariffs. The Fed's March meeting minutes suggest economic forecasts and dot plots imply two potential rate cuts in 2025.
However, Trump's tariff policies not only increase the risk of a US recession but may also force the Fed to implement more aggressive rate cuts. Meanwhile, market performance remains sluggish, reflecting that previous expectations of the Fed's policy shift have not translated into a substantial rebound. Investors are choosing to wait and adopt a cautious approach.
Notably, this Monday, Treasury Secretary Becent announced that the White House will begin interviewing candidates to replace Powell as Fed Chairman. Powell's current term will expire in May 2026. Despite frequent political pressure from Trump, he has repeatedly reaffirmed his intention to complete his term. Wall Street rumors suggest that Fed Governor Waller is likely to succeed Powell as Fed Chairman after his 2026 term, and his views this week differ from some FOMC members.
On Monday, Waller stated that if the US President reimplements the tariff measures announced on April 2nd, the Fed would have to quickly implement a series of "bad news" rate cuts. Waller warned that if Trump fully implements tariffs after the suspension period, US economic growth would "almost stall," and unemployment would surge from the current 4.2% to 5% next year. He also noted that while short-term inflation might spike to 5%, the upward price pressure trend might be temporary, opening space for the Fed to cut rates to offset economic slowdown.
Waller said: "Although I expect the inflationary effects of tariffs to be temporary, their negative impact on output and employment could be more lasting and become an important factor in setting monetary policy stance. If the economic slowdown is severe, even approaching recession, I would tend to lower policy rates earlier and more significantly than previously expected."
Waller's assessment of rising unemployment aligns with the New York Fed's consumer confidence survey released Monday. The survey shows that 44% of Americans currently expect unemployment to rise in the next year, the highest level since the pandemic, and this percentage has increased by 10 percentage points since Trump took office.
Other FOMC members mostly advocate a "wait-and-see" attitude. They state they will not rashly adjust rates before seeing actual slowdown signs in hard data. Powell currently shares this view.
Since the beginning of 2025, the Fed has maintained rates in the 4.25%-4.5% range. The market currently expects three rate cuts by the Fed in 2025, with the first starting in June. According to the April 16th CME "Fed Watch Tool", the probability of the Fed maintaining rates in May is 81.4%, and the probability of a 25 basis point rate cut in June is 60.1%.
Additionally, multiple investment banks have recently increased their expectations for Fed rate cuts this year. The latest to make changes is Deutsche Bank, now predicting the Fed will cut rates by 25 basis points in December, previously expecting no cuts in 2025. They also anticipate two additional 25 basis point cuts in the first quarter of 2026, bringing the terminal rate to 3.5%-3.75%.
Welcome to join BlockBeats official community:
Telegram Subscription Group: https://t.me/theblockbeats
Telegram Communication Group: https://t.me/BlockBeats_App
Twitter Official Account: https://twitter.com/BlockBeatsAsia
