Analyst: The Federal Reserve's hawkish shift narrows the room for easing and rate cuts

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Gold Financial reports, on May 25, U.S. financial website investinglive analyst Eamonn Sheridan pointed out that the Federal Reserve's April meeting minutes show a clear shift in stance. The previous emphasis on responding "flexibly and swiftly" based on economic data has been replaced by new wording: persistently high inflation, coupled with uncertainties about the economic impact of the ongoing Iran conflict, may mean that policy needs to remain on hold longer than previously expected.
The inflation situation faced by new Chair Powell is not solely an energy issue. Officials noted that rising fuel costs are gradually passing through to shipping rates, airfare prices, and fertilizer costs, spreading inflationary pressures to a broader range of sectors. This transmission effect makes inflation harder to view as temporary and provides hawkish officials with a more sustained basis for advocating maintaining high interest rates or even raising them.
The market currently expects that if inflation does not decline, the Fed may raise rates again by the end of 2026 or early 2027. Powell himself leans toward cutting rates, but this stance potentially conflicts with a clearly hawkish committee; as Powell's leadership style becomes more apparent, this dynamic could intensify fluctuations in FOMC communication.
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