Shenwan Hongyuan: Not cutting interest rates may be the "bottom line" for the Federal Reserve

Shenwan Hongyuan's research report believes that since the end of February, the center of crude oil prices has continued to rise due to the Middle East geopolitcal conflict, triggering concerns about stagflation. The March FOMC meeting took a hawkish stance, triggering tightening trades, and the market has begun to speculate on a Fed rate hike this year. The Fed's hawkish policy stance is in line with expectations, but "not cutting interest rates" is the "bottom line," and attention should be paid to the "negative feedback" of tightening financial conditions. Not cutting interest rates is the "bottom line" of the Fed's hawkish stance for 2026--a rate hike is a very low probability event. This is mainly based on: first, the conditions for the formation of a "great stagflation" similar to that of the 1970s are not sufficient; second, short-term inflation pressures will be suppressed by mechanisms such as actual income effects, financial conditions effects, wealth effects, and expectations, thus producing "reflexivity" on oil prices and inflation.