The Federal Reserve’s recent moves are getting increasingly interesting. Last week, the decision was to keep interest rates unchanged at 3.5%-3.75%, which seemed to align with expectations on the surface, but the number of dissenting votes reached four—the most severe split since 1992. Some want to cut rates, while others believe inflation risks are too high; this internal rift is directly reflected in the market.

Driven by this hawkish tone, the U.S. Dollar Index rose 0.4% that day, and the dollar/Japanese yen surged to 160.47, hitting a new high since last July. Watching the yen continue to depreciate, the strength of this dollar upswing is indeed significant. The market has almost given up hope for the Fed to cut rates this year, and expectations for rate cuts have been repeatedly scaled back.

At the press conference, Powell also announced a personal update: after his term as Chair ends on May 15, he will remain a Federal Reserve Board governor until 2028. To some extent, this decision also signals his stance toward the direction of future policy.

Looking ahead, Hurs nominated by Trump is about to take over and become the next Fed Chair. Interestingly, Hurs advocates a combination of “balance-sheet reduction plus rate cuts,” but the current situation is not friendly to him. On one hand, he must deal with the clear split within the Fed over the interest-rate path; on the other hand, he must respond to the possibility of a new round of inflation brought about by energy shocks. JPMorgan’s analysis shows that the hawkishness level of this statement has reached a new high since June 2025. They expect the Fed to keep rates unchanged throughout all of 2026, with a possible rate hike only in 2027.

Goldman Sachs is slightly more optimistic, saying that while the threshold for rate cuts has clearly increased, there is still a possibility of rate cuts in the second half of the year, and they will keep their September and December rate-cut forecasts unchanged. However, judging from the recent performance of the U.S. Dollar Index, the market seems more inclined to believe the hawkish voices. In the short term, the dollar will likely continue to be supported, which will keep pressure on safe-haven currencies like the Japanese yen.