Recently, the Federal Reserve's actions have really made the market a bit nervous. At the end of last month’s meeting, keeping interest rates unchanged was expected, but the four dissenting votes marked the most serious split since 1992, and this was the first time seeing such a scene. Some people want to cut rates, while others are steadfast in maintaining high interest rates; it seems the inflation tiger has not been fully tamed yet.

Powell announced he will remain as a board member until 2028, a decision that somewhat signals—the Federal Reserve is unlikely to turn dovish in the short term. The market has almost given up expectations of rate cuts this year, and the bets in the money market have adjusted accordingly. The overall tone of the meeting was one word: hawkish.

The most immediate beneficiary is the US dollar. The dollar index rose 0.4% that day, and the USD/JPY exchange rate soared to 160.47, hitting a new high since July last year. Watching the yen weaken, some investors holding yen-denominated assets are probably feeling distressed. This actually reflects the market’s expectation that the Fed will maintain high interest rates—strengthening the dollar puts pressure on other currencies.

But the story isn’t over yet. Trump’s nominee, Waller, is about to take office. This new chair advocates a combination of “balance sheet reduction and rate cuts,” which differs somewhat from Powell’s approach. Some call him the “Fed’s mouthpiece,” believing he will face a complex situation—dealing with internal divisions over the interest rate path, as well as responding to new inflation risks brought by energy shocks.

JPMorgan’s analysis shows that this hawkish statement reached a new high since June last year. They expect the Fed to keep rates unchanged throughout 2026, and only possibly raise rates in 2027. Goldman Sachs is slightly more optimistic, believing there is room for rate cuts in the second half of the year, maintaining their forecasts for rate cuts in September and December.

So, the current situation is—short-term, the yen’s exchange rate is unlikely to improve, and the dollar will continue to be strong. The market is waiting to see how Waller will play his hand after taking office. Regardless, the Fed’s hawkish stance is already very clear.