CICC: Federal Reserve's Rate-Cut Space Limited Under "Stagflation-Like" Conditions

Odaily Planet Daily reports that China Securities Research states that the Federal Reserve kept interest rates unchanged at the March meeting, in line with market expectations. The dot plot and economic forecasts show an upward revision of inflation expectations and a narrowing of rate cut room, indicating a cautious overall policy stance. Although Powell believes that oil price shocks are highly uncertain and the economy remains resilient, we think the actual situation is more complex. Tariffs and immigration policies have already constrained supply, and combined with oil price shocks, the U.S. economy is entering a “stagflation-like” phase. Meanwhile, risks in private credit are emerging, and financial conditions may tighten spontaneously. Against this backdrop, the Federal Reserve is likely to remain on hold in the short term due to sticky inflation; in the medium term, as demand weakens or financial risks increase, there may be pressure to passively shift toward rate cuts. We expect the Fed to keep rates unchanged in the first half of the year, with rate cuts postponed to the second half. However, if rate cuts are a passive response to worsening economic or financial conditions, it will also be difficult to boost market risk appetite. (Jin10)