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#FedHoldsRateButDividesDeepen
Interest rates remain stable, but divisions within the Federal Reserve are widening
The U.S. Federal Reserve keeps the policy rate at 3.50%-3.75%. But this decision was the most divided since 1992: 8 to 4 votes. The split between doves and hawks is now clearly evident, and the reason is one word: oil prices.
1. 8-4: The most divided Federal Reserve since 1992
At the Federal Open Market Committee (FOMC) meeting, four members dissented. Three regional Fed presidents — Cleveland Fed President Loretta Mester, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan — supported holding rates steady but opposed the language in the statement that indicated a “dovish tilt.” Their reasoning was clear: the oil price shock triggered by the Iran conflict is increasing inflation risks, and in this environment, it’s inappropriate to hint at a rate cut next.
The fourth dissenter held the opposite view: Chair Jerome Powell wanted to cut rates by 0.25 percentage points.
Result: The Fed kept the phrase “the next move could be a rate cut” in the statement, but Powell acknowledged that the majority view for such a stance is shrinking.
2. Oil price shock changes the situation
Brent crude has risen to $120, doubling since the start of the year. The Fed’s dilemma is very clear: raise rates to curb inflation or cut rates to support economic growth damaged by the war?
Mester said, “Inflationary pressures are widespread, and the rise in oil prices adds additional pressure. The dovish tilt is no longer appropriate.” Kashkari was more explicit: if the Strait of Hormuz remains closed for a long time, “a series of rate hikes may be necessary.”
Logan believes, “The next rate move could be either a hike or a cut,” and no guidance should be provided.
3. Powell’s signal: “We are shifting to neutral”
Powell stated that the committee’s stance “has shifted to a more neutral position.” Neutral means the economy is neither overheating nor cooling down, and rates could move in either direction. In other words, the 18-month-long “rate cut cycle” is about to end. Powell described it as: “We first shift to a neutral bias, then if we want to hike, we shift to a hawkish bias.”
4. Market expectations: rate cuts delayed until 2027
According to CME FedWatch data, market expectations for the next rate cut have been pushed back to the end of 2027. This is four quarters later than the mid-2026 forecast at the start of the year. Morgan Stanley, Goldman Sachs, and JPMorgan Chase have all canceled their rate cut expectations for 2026. The reasons are: inflation remains above the 2% target, the labor market is strong, and oil price risks persist.
5. Political shadow: The beginning of the Wosh era
This was Powell’s last meeting as chair. His term ends on May 15, and Trump-nominated Kevin Wosh is expected to become the new chair. But analysts note that Wosh will inherit a divided committee. While Trump hopes for an aggressive move down to 1%, internal support for rate hikes is rising.
6. Impact on the markets
1. Increased volatility: Divergence among central banks means policy communication uncertainty. According to Reuters, this means “more ambiguous signals and increased market volatility.” 2. Energy = inflation: For the first time, the Fed’s statement included “developments in the Middle East add a high degree of uncertainty to the economic outlook.” Oil prices have become a new variable in the rate path. 3. Rate cut bets are tightening: Dallas Fed’s Logan said, “No more forward guidance hinting at rate cuts.”
Reminder for Gate Square investors
For the crypto market, the Fed’s shift to neutral has both pros and cons. While expectations of easing liquidity are waning, inflation driven by oil prices could support Bitcoin’s “digital gold” narrative. But the possibility of rising rates rather than falling also pressures risk assets. The split 8-4 this week indicates the Fed will remain on hold in the second half of 2026.
After the meeting, the S&P 500 and bond prices declined. The message is clear: the Fed no longer commits to rate cuts. The next move depends on data, which is currently being transmitted through the Strait of Hormuz.
Always do your own research (DYOR).
#GateSquareMayTradingShare
#Gate广场五月交易分享
#FedHoldsRateButDividesDeepen
Rate Held Steady, but the Crack Inside the Fed Is Widening
The US Federal Reserve held its policy rate steady at 3.50%-3.75%. But the decision came with the most divided vote since 1992: 8 to 4. The dove-hawk split is now clearly on the table, and the reason is one word: Oil.
1. 8-4: Most Divided Fed Since 1992
At the FOMC meeting, 4 members dissented. Three regional presidents — Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan — supported holding rates steady but objected to the “easing bias” language in the decision text. Their reasoning is clear: The oil shock from the Iran war is increasing inflation risk, and in this environment, implying the next step will be a cut is not right.
The fourth dissent was in the opposite direction: Governor Stephen Miran wanted a quarter-point cut.
Result: The Fed kept the “next step is likely a cut” signal in the text, but Chair Jerome Powell acknowledged this is an increasingly shrinking majority view.
2. The Oil Shock Changed the Equation
Brent crude hit $120 and has doubled since the start of the year. The Fed’s dilemma is clear: Raise rates to curb inflation, or cut to support growth damaged by war?
Hammack said, “Inflation pressures are broad-based and rising oil prices create additional pressure. An easing bias is no longer appropriate.” Kashkari was even clearer: If the Strait of Hormuz stays closed for long, “potentially a series of rate hikes” may be needed.
Logan argued that “the next rate change could be a hike or a cut,” and that no guidance should be given.
3. Signal from Powell: “We’re Moving to Neutral”
Powell said the center of the committee has “shifted to a more neutral place.” Neutral means a level where the economy is neither heating nor cooling, and rates could go either way. In other words, the “rate-cut cycle” rhetoric that has lasted 18 months is ending. Powell’s description: “We first move to a neutral bias, then if we want to raise rates, we move to a hiking bias.”
4. Market Pricing: Cuts Pushed to 2027
According to CME FedWatch, expectations for the next cut have shifted to the end of 2027. That’s 4 quarters later than the mid-2026 expectation at the start of the year. Morgan Stanley, Goldman Sachs, and J.P. Morgan shelved their 2026 cut forecasts. Reason: Inflation remains above the 2% target, the labor market is strong, and oil risk is on the table.
5. Political Shadow: The Warsh Era Begins
This was Powell’s last meeting as chair. His term expires May 15 and Trump’s nominee Kevin Warsh is expected to be the new chair. But analysts note Warsh will also inherit a divided committee. While Trump wants aggressive cuts down to 1%, voices advocating hikes are rising inside the committee.
6. What It Means for Markets
1. Volatility Increases: Disagreement among central banks means uncertainty in policy communication. According to Reuters, this means “blurrier messaging and volatility” for investors. 2. Energy = Inflation: For the first time, the Fed text included “Developments in the Middle East add high uncertainty to the economic outlook.” Oil is the new variable in the rate path. 3. The Rate-Cut Bet Is Closing: Dallas Fed’s Logan: “Forward guidance implying cuts should no longer be given.”
Note to Gate Square Investors
For crypto markets, the Fed’s shift to neutral cuts both ways. While expectations for a liquidity tap are fading, oil-driven inflation could support Bitcoin’s “digital gold” thesis. But the possibility of rates rising instead of falling creates pressure on risk assets. This week’s 8-4 split shows the Fed will stay in wait-and-see mode through the second half of 2026.
After the decision, the S&P 500 and bonds fell. The message is clear: The Fed is no longer promising cuts. The next move is data-dependent, and that data is currently passing through the Strait of Hormuz.
Always do your own research (DYOR).
#GateSquareMayTradingShare
#Gate广场五月交易分享
#FedHoldsRateButDividesDeepen