The Federal Reserve expects to keep interest rates unchanged, and economic uncertainty has prompted policymakers to remain on the sidelines. The Federal Reserve will announce its interest rate decision on Wednesday, and the market generally expects it to maintain the benchmark interest rate range of 4.25% -4.5% unchanged.

This decision is mainly influenced by the slowdown in US economic growth and intensified trade concerns. Although inflation remains above the target level of 2%, the cooling of economic activity requires policymakers to spend more time observing market dynamics.

The uncertainty of policy paths makes it difficult for Federal Reserve officials to make clear plans for interest rate adjustments, "said KPMG Chief Economist Diane Swank. At present, there is a significant divergence between the market's expectations for the timing of interest rate cuts and the cautious stance of the Federal Reserve

Inflation pressure still exists, economic growth is slowing down, and the Federal Reserve is facing a policy dilemma. The latest data shows that US consumer confidence has declined, stock market volatility has intensified, and trade policy uncertainty has heightened market concerns about the economic outlook.

According to market research, Federal Reserve officials expected two interest rate cuts in 2025 in their December forecast, but the current economic situation may prompt them to adjust their expectations.

The expected rate cut by the market is more aggressive than the Federal Reserve's forecast, "said Casey Bosjanch, Chief Economist at Nationwide. Despite the slowdown in economic growth, the Federal Reserve may still be more concerned about inflation risks rather than immediately shifting towards loose policies

Key factors in interest rate decision-making: trade policy and inflation expectations. Recently, the market anxiety caused by changes in trade policies is affecting the policy stance of the Federal Reserve

On the one hand, the new tariff measures and their impact on the supply chain are still unclear, which may bring fluctuations to economic data in the coming months; On the other hand, long-term inflation expectations have risen for three consecutive months and reached a new high in thirty years.

The Federal Reserve may view the impact of trade policy as a short-term factor rather than a long-term inflation driver, "said a market analyst. But if consumer confidence continues to decline and economic growth prospects deteriorate, the Federal Reserve may have to reassess the urgency of interest rate cuts

The adjustment of the balance sheet may become the focus, and the market is paying attention to the impact of the Federal Reserve on the bond market. At present, the Federal Reserve is still undergoing quantitative tightening (QT), which means tightening liquidity by reducing bond holdings on its balance sheet.

However, the market expects the Federal Reserve to slow down or even completely halt this process in the coming months to address potential liquidity issues in the fiscal market.

If there is significant pressure in the bond market, the Federal Reserve may have to adjust its balance sheet policy, "said a Wall Street strategist. This may have an indirect impact on the trend of interest rates

The market is waiting for Powell's speech, looking for clear signals on interest rate policy. After the meeting, Federal Reserve Chairman Powell will answer questions about the path of interest rates, the impact of trade policy, and the economic outlook at a press conference.

The market will closely monitor his words to determine whether the Federal Reserve will initiate interest rate cuts in the second half of this year or maintain current policies until inflation further decreases.

The Federal Reserve is facing a complex policy environment where slowing economic growth and inflationary pressures coexist, requiring it to carefully weigh its interest rate decisions. At present, although the market expects the timing of interest rate cuts to be advanced, the Federal Reserve still tends to remain cautious.

In the coming months, the actual impact of trade policies, the recovery of consumer confidence, and inflation trends will all be key factors determining interest rate adjustments.