This week, the global market is focused on the Federal Reserve, and a rate cut is basically a done deal, yet everyone seems more anxious.
Why? They are worried about a "dovish tone but hawkish actions"—the interest rates may decrease, but the language used could be tough, akin to giving you candy while telling you, "there may not be any next time."
The market has already reacted in advance, with both the U.S. stock market and bond market declining, and funds are clearly seeking safety. Currently, the probability of a rate cut is over 87%, but the real key is not whether they will cut rates, but rather how they will communicate it.
If the Federal Reserve emphasizes that inflation is still high, or suggests that there will be fewer rate cuts this year, the market may experience significant volatility. Some analysts even believe that there are signs of "stagflation" in the economy, and internal opinions may diverge. If a few officials publicly oppose, it will be even harder to predict the market.
On another front, Japan was struck by a 7.6 magnitude earthquake, which not only causes concern but also impacts the yen. Originally, the market expected that the Bank of Japan might raise interest rates soon, but now, with the disaster, the rate hike plan is likely to be delayed, as disaster relief and stabilizing the economy are the top priorities. The U.S. dollar against the yen rose in response.
This week, it's not just the Federal Reserve; several central banks will also hold meetings, but most are expected to "stand pat." Everyone is cautious, and no one wants to make a hasty turn.
In my view, the real test will come after the announcement of the decision. How Powell explains the policy and describes the outlook, every word will be magnified and interpreted. Additionally, with Japan's disaster and some European Central Bank officials hinting at "not ruling out rate hikes," the market now feels like a tightened string. One wrong word could trigger a new wave of turbulence.
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