Dongwu Securities: The prospect of a Fed interest rate cut depends on oil prices, and the threshold for raising interest rates remains high.

Dongwu Securities research report stated that the prospect of interest rate cuts depends on oil prices, and the threshold for rate hikes remains relatively high. During the press conference, Powell's two hawkish signals combined with escalating Middle East tensions continued to tighten market trading conditions. After the meeting, the annual interest rate cut expectations temporarily narrowed to just slightly above 50%, with gold, US stocks, and copper falling, and the US dollar index and US bond yields rising. Looking ahead, the sustainability of the rise in oil prices will have a more significant impact on the Fed's interest rate cut decision. If the blockade lasts for two months or more, similar to the Russia-Ukraine conflict period, oil prices may reach a second peak, causing the year-on-year CPI to rebound to 3.0-4.8%, potentially leading the Fed to abandon interest rate cuts for the year. For major asset classes, the impact of interest rate cut expectations returning to zero has not yet been resolved: if the remaining 14bps interest rate cut expectation returns to zero, US Treasury yields may face an additional 14bps upside. Compared to interest rate cuts returning to zero, the Fed faces greater economic constraints and political pressure on raising rates, so rate hikes are not considered the baseline scenario by the Fed. The decision to raise rates confirms the risk of inflation spiraling out of control, likely due to geopolitical conflicts and rising oil prices. For gold, this scenario implies a return to the logic of hedging against risk and uncontrollable inflation; and if oil prices fall, the rekindling of interest rate cut expectations would also be beneficial for gold. Therefore, the current tight monetary policy impact on gold is likely to be temporary, while long-term logic such as geopolitical conflicts and central bank gold purchases remains unchanged and unchallenged.