The reasons for the Fed rate cut are gradually disappearing? Analysts: Inflation pressure may make policy stance more hawkish

With the American job market continuing to show resilience and inflation pressures rising again, the market is increasingly convinced that the Federal Reserve is finding it difficult to find reasons to cut interest rates in the short term. The April non-farm payroll report in the United States showed an addition of 115,000 jobs that month, which, although not strong, further indicates that the labor market as a whole has stabilized and is not pressing enough to prompt the Fed to cut rates immediately. In contrast, inflation remains stubborn. Analysts believe that this may push the Federal Open Market Committee (FOMC) responsible for setting interest rate policy further towards a hawkish stance and be more willing to maintain the current interest rate level for a longer period of time. Lindsay Rosner, head of multi-asset fixed income at Goldman Sachs Asset Management, stated, "As the job market returns to normal, the Fed's focus will shift to controlling the risk of rising inflation." She believes that the Fed may even remove previous dovish language in its June meeting statement, indicating that hawkish officials are currently gaining ground within the committee. At last week's FOMC meeting, three regional Fed presidents opposed the "forward guidance" language in the post-meeting statement. They were not against keeping interest rates unchanged but believed that the wording suggested a more likely next step in policy would be a rate cut. Goolsbee, in an interview on Friday, stated that he has always been wary of guiding market expectations through wording and is concerned about current inflation trends. He pointed out that U.S. inflation has been above the Fed's 2% target for five consecutive years, progress in combating inflation has stagnated since last year, and in the past three months inflation has even risen again. He said, "If everyone starts to believe that inflation will return to levels from several years ago, then it will be a very tricky problem for the Fed." Goolsbee also emphasized that inflation pressures are not only coming from gasoline prices and tariffs, but rising costs in the service sector are also pushing up overall prices. Data shows that the U.S. Consumer Price Index (CPI) rose 3.3% year-on-year in March, significantly higher than the Fed's target level. In traditional economic logic, a stable job market combined with high inflation conditions does not support a rate cut. Scott Clemons, Chief Investment Strategist at Brown Brothers Harriman, said, "It is becoming increasingly clear that the Fed can afford to be patient. There are currently no economic reasons to require further rate cuts." Expectations in the interest rate market are also starting to change significantly. According to federal funds rate futures pricing, traders have almost completely ruled out the possibility of the Fed cutting rates before April 2031 and even factored in the probability of further rate hikes in the coming years. Dan North, Senior Economist at Allianz North America, said that recent economic data makes it "easier for the Fed to keep rates unchanged" and may gradually shift towards a more hawkish stance in the next year. This also puts the new nominee for Federal Reserve Chairman appointed by President Trump, Warsh, in a more complex situation. Warsh has advocated lowering interest rates and believes that the Fed can still control inflation under an accommodative policy. He has also suggested that the Fed should adjust its balance sheet, which is currently at $6.7 trillion, more in order to implement monetary policy than solely relying on the federal funds rate. However, analysts believe that pushing for rate cuts will become very difficult in the current environment where inflation remains above 3%, especially with the overall hawkish stance of the FOMC. Dan North said, "Warsh was clearly chosen by Trump because of his inclination towards low interest rates, but the situation he is facing now may be much more complicated than expected."