At 2 AM on May 8th, the Federal Reserve will hold its May monetary policy meeting. The market is almost betting that there will be no interest rate cut this month, with the focus shifting to the probability of rate cuts in June and July.
According to the latest report by renowned financial journalist Nick Timiraos, known as the "New Federal Reserve News Agency": "The Federal Reserve will not cut rates prematurely due to anticipated economic slowdown; they need to see actual data, especially in the labor market."
The Federal Reserve currently needs to make a choice between maintaining inflation and preserving employment. The trade war may push prices higher in the short term, and its uncertainty could slow economic activity, bringing the possibility of stagflation, which might lead the Federal Reserve to choose to delay rate cuts. The April non-farm payroll data indicates a strong job market, and the Federal Reserve does not seem to need to rush into cutting rates.
Another point of concern is when the Federal Reserve will pause its balance sheet reduction. The Federal Reserve has been reducing its balance sheet since mid-2023, and the market expects it to pause this reduction in June and July. With no expectations of rate cuts in the short term, the market will continue to engage in competition among existing funds.