Because the speech by Fed Chairman Powell will outline the Fed's path for rate cuts in the second half of this year. Additionally, there will be the Fed's dot plot, which means the committee will provide a specific rate cut roadmap for the second half of this year. There are three major points of interest for tonight's meeting.
The first point of interest is the dot plot. In March this year, the Fed's voting committee adjusted its expectations for rate cuts in 2025 from three cuts last December to two cuts, mainly due to the rebound in inflation this year and the rising trend of tariffs in the U.S.
This time, the market is very concerned about whether the expected rate cuts will be further adjusted from two cuts to one cut. If such an adjustment occurs, it would be a massive blow to the market, and the likelihood is indeed not small. If even two of the nine committee members raise their rate cut expectations, it is possible that this year will change from two cuts to one cut.
The second point of interest is the Fed's economic forecast, which is likely to downwardly adjust the growth forecast for the U.S. economy. This year's growth is likely to be adjusted down from an initial forecast of 1.7% to 1.4%. On the positive side, the economic growth forecast for next year, 2026, is likely to be adjusted up to 1.8%. This is due to a series of economic stimulus policies, such as tax cuts, that will take effect in the fourth quarter of this year, providing substantial benefits to the U.S. economy in 2026. This is why it is believed that the U.S. stock market in the second half of this year will experience a reversal compared to the first half.
Additionally, regarding the Fed's inflation forecast, so far, the tariff policies in the first half of this year do not seem to have had much impact, with inflation remaining below expectations for three consecutive months. However, it is important to note that the tariffs from the first half of this year may not yet have fully reflected in prices. In the second half of the year, the Fed is likely to raise its inflation forecast, with the expected inflation rate for the end of 2025 possibly adjusted from 2.9% to 3.1%. This could delay the Fed's first rate cut until September.
The third point of interest is certainly the speech by Fed Chairman Powell. Will Powell directly provide guidance on future rate cuts at this meeting? It is important to note that if he provides guidance, the market can start trading on rate cut expectations without waiting for the actual cuts to occur.
Powell's speech can be divided into dovish and hawkish statements. If it is a hawkish statement, it will simply continue to play it safe, saying that uncertainty in the economy is still significant and that there is a risk of inflation rebounding. He would take a wait-and-see approach until tariff data becomes clearer before providing guidance on rate cuts, which is a hawkish stance.
But if Powell shows concern about the economy and is optimistic about inflation, for example, saying that inflation in the U.S. is moving towards the 2% target, or warning about the significant risk of a cooling labor market, then that would be a dovish statement. Is there a possibility that Powell will make a dovish statement? There are indeed signs; yesterday, Nick from the Federal Reserve communications said that based on economic data, the Fed should have cut rates this week, but due to tariffs, it's very likely they won't cut rates.
Regardless, this statement has opened up everyone's imagination. If Powell also believes that the economic data is actually good data, he is likely to convey a dovish message to the market. So how will it turn out? We'll find out in the early morning. The recent situation is complex, and everyone should be aware of volatility risks.
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