Powell May Pivot to Hawkish Stance as Fed's Dovish Outlook Faces End

BlockBeats News, June 4th. As the FOMC meeting approaches this month, the market's expectations for a Fed rate cut continue to diminish. Reuters columnist Mike Dolan stated that the sole remaining "one rate cut this year" expectation in the dot plot may be completely removed, and there is even the possibility of the new Chair, Kevin Wash, pushing to scrap the dot plot mechanism.

Currently, the AI investment boom and the Middle East situation have boosted energy prices, reigniting inflationary pressures. The U.S. labor market remains resilient, with private payrolls adding 122,000 jobs in May, surpassing expectations, leading the market to start pricing in the possibility of a rate hike this year.

Reports indicate that the upcoming meeting is not expected to result in an immediate rate hike, but the policy statement may further downplay the dovish stance. Several officials have previously suggested removing related forward guidance, and the once dovish Waller has recently shifted to supporting a more hawkish stance.

Economist Tim Duy from SGH Macro Advisors stated that the Fed is internally reassessing last year's rate cut decision, with an increasing number of officials laying the groundwork for future rate hikes. Meanwhile, Wash's hiring of conservative economist Paul Winfree, who has advocated for weakening the Fed's employment target, as an advisor has deepened concerns in the market about his hawkish stance.

Analysts believe that as easing expectations recede, the Fed's policy cycle may have already shifted, potentially leading to significantly increased volatility in the U.S. bond and interest rate markets in the second half of the year.