On the night of Powell's curtain night, Wall Street heard more hawks

Original title: Powell's departure, oil price rises, hawk's overall warming - Wall Street Review of the Fed Resolution

Original by Jo Wing

Original source:See you on Wall Street

The Federal Reserve kept quiet but allowed Wall Street to hear more hawks. Three dissenting votes against the retention of a liberal bias, inflationary pressures resulting from soaring oil prices, and the end of President Powell's term, collectively pushing the market from interest-rate trading to more complex interest-rate escalation risk pricing。

ACCORDING TO WIND TRACK, AT THE FOMC MEETING ON 29 APRIL, THE FEDERAL RESERVE MAINTAINED A LEVEL OF 3.50 PER CENT TO 3.75 PER CENT OF THE TARGET AREA OF THE FEDERAL FUND. THE POST-CONFERENCE READINGS OF GOLDMAN SACHS, SILVER, MORGAN CHASE AND HSBC ALL POINT TO THE SAME CONCLUSION: IT IS NOT THE INTEREST RATE DECISION ITSELF THAT IS REALLY IMPORTANT, BUT RATHER THE RHETORIC OF STATEMENTS THAT IS WIDENING AND THE CONSENSUS WITHIN THE COMMISSION ON THE POLICY DIRECTION IS LOOSE。

The situation in Iran deteriorated, and oil prices became another major thread of the day of the Conference. According to the Bank, the rate of return on the two-year period increased by 10 basis points, only about three of which occurred after the release of the Federal Reserve resolution, while the remaining seven base points were mainly from a single-day 8 per cent increase in Brent crude oil to $120 per barrel. According to Chase Morgan, the situation in Iran and the risk of energy escalation in the Strait of Hormuz have directly reduced the Federal Reserve ' s relaxed space。

THE TRANSFER OF POWER MAGNIFIES POLICY UNCERTAINTY. POWELL CONFIRMED THAT THIS WOULD BE ITS FINAL FOMC MEETING IN HIS CAPACITY AS CHAIRMAN OF THE FEDERAL RESERVE AND INDICATED THAT THE PRESIDENT WOULD REMAIN IN FOMC AS AN ORDINARY MEMBER AFTER HIS TERM OF OFFICE, FOR A PERIOD TO BE DETERMINED. AT THE SAME TIME, THE SENATE BANKING COMMITTEE HAS ADVANCED KEVIN WALSH ' S NOMINATION AS CHAIRMAN OF THE FED. AN ERA OF MONETARY POLICY HAS OFFICIALLY COME TO AN END, AND THE POLICY STYLE AND COMMUNICATION FRAMEWORK OF THE SUCCESSORS IS EMERGING AS A NEW FOCUS FOR THE MARKET。

Three dissenting votes. Easiness is no longer stable

THE MOST TOPICAL SIGNAL FOR THIS MEETING IS THE DIVISION WITHIN FOMC OF THE LANGUAGE OF THE STATEMENT。

According to David Mericle, the economists of Goldman Sachs, Hammack, Kashkari, and Logan, were opposed to the implicit liberal language in the statementThis result was unexpected。At the same time, Miran supported a reduction in interest rates consistent with Goldman Sachs' earlier judgement。

The controversy centred on the statement on “the timing of additional adjustments”. This wording is seen in the context of the market context as a signal to preserve the possibility of a further reduction in interest rates. Three members objected to the retention of the expression, which meant that some policy makers were no longer willing to continue to pass one-way emissive signals to the market。

At the launch, Powell acknowledged that the Commission had engaged in a “heated discussion” around policy guidance. He says:There has been an increase in the number of members supporting the move towards more neutral guidance over MarchFOMC'S CENTRAL POSITION IS MOVING TOWARDS A “MORE NEUTRAL” INTEREST RATE OUTLOOK, BUT MOST MEMBERS FELT THAT THE TIME WAS NOT RIPE. HE EVEN SAID THAT THE WORDING HAD BEEN REWORDED "AT THE EARLIEST POSSIBLE TIME AT THE NEXT MEETING" — THAT IS, FROM 16 TO 17 JUNE。

HSBC also stressed that the essence of the disagreement was that the policy direction was no longer one-sided. While supporting the maintenance of interest rates, the three members categorically opposed the continuation of a liberal bias, which would send a signal to the market:The next step could be a reduction or a hike。

The interest rate hike goes back to pricing, and the interest rate threshold is raised

Wall Street’s common judgement is that the Fed has not officially turned to interest rate hikes, but that the long-silent term has officially returned to market view。

ACCORDING TO THE BANK OF CHINA, AFTER THE HAWKS' FOMC MEETING, THE PRICE OF OIL HAS INCREASEDThe market has now factored about 10 basis points into pricing over the next 12 months。At the same time, the Bank noted that this was not the same as the 2022 interest-rate cycle, as the current energy shock would also put downward pressure on growth, as indicated by Powell at the launch。

Morgan Chase's interpretation is more hawk. Its natural language processing model shows that the hawk rating for this statement and Powell's launch was the highest since June 2025. According to the bank, the currency market price has been reduced from “nearly a full interest rate by the end of 2027”A rapid shift towards “nearly 50 per cent interest rate hike at the beginning of 2027”。

Goldman Sachs has maintained a more cautious judgment. The Bank still predicts a possible fall in interest rates by the Fed in September and December, but believes that in the absence of a significant weakness in the job market, the threshold has been significantly raised. Goldman SachsThe risk of longer suspensions of interest rates is on the rise, but there is still a high degree of scepticism about the possibility of an increase。

HSBC forecasts are strongest. The Bank anticipated that the Fed would not reduce interest rates in 2026 and 2027。ACCORDING TO HSBC, IF CORE PCE INFLATION DOES NOT FALL BY 3 PER CENT OR EVEN 2.5 PER CENT, IT IS ALMOST IMPOSSIBLE TO REDUCE INTEREST RATES, WHILE ITS OWN PROJECTIONS INDICATE THAT CORE PCE INFLATION WILL REMAIN ABOVE 3 PER CENT BY 2026 AND ABOVE 2.5 PER CENT BY 2027。

Oil prices are the key, and the situation in Iran leads to pricing logic

Unlike previous Federal Reserve statements that dominated the market response, energy prices were at the heart of the interest rate market on the day of the meeting。

According to the Bank, only about three of the 10 basis points of the two-year increase in the rate of return on United States debt can be attributed to the Federal Reserve resolution itself, with most of the remaining increases coming from Brent crude oil to $120 per barrel. The Bank believes that the main driving force behind the current Federal Reserve outlook is the situation in Iran and oil prices, not simply the function of policy response。

Morgan Chase also flatened the front-end yield and the yield curve, owing to the deterioration of the situation in the Middle East and the risks in the Strait of Hormuz. The rise in oil prices not only pushed up inflation expectations, but also made it more difficult for the Federal Reserve to release loose signals。

In the launch, Powell made clear that, against the backdrop of the continuing high levels of war and energy price uncertainty, most members did not see the need to adjust policy guidelines at this time. According to JP Morgan, Powell also set the premises for a potential reduction in interest rates, namely the need to see energy prices stabilize and tariff issues move forward。

ACCORDING TO GOLDMAN SACHS, EVEN WHEN GEO-CONFLICTS END IN THE FUTURE, SOME OF THE FOMC MEMBERS MAY RESERVE INTEREST RATE REDUCTIONS EVEN AS INFLATION REMAINS CLOSER TO 3 PER CENT RATHER THAN 2 PER CENT. EVEN IF INFLATION IS EXCEEDED MAINLY BY TARIFF AND ENERGY PRICE TRANSFERS, POLICY EASING MAY NOT COME QUICKLY。

Powell's curtain. Walsh's stick brings new variables

This meeting also marks the end of President Powell's term。

ACCORDING TO THE BANK, THIS WAS THE LAST FOMC MEETING THAT POWELL HAD CHAIRED SINCE HE ASSUMED THE CHAIRMANSHIP OF THE FED. AS ALSO MENTIONED IN THE GOLDMAN SACHS REPORT, POWELL INDICATED THAT, AFTER THE EXPIRATION OF THE PRESIDENCY ' S TERM OF OFFICE ON 15 MAY, HE WOULD REMAIN IN FOMC AS AN ORDINARY MEMBER FOR A WHILE TO BE DETERMINED。

With regard to the reasons for his retention, Goldman Sachs stated that he was awaiting the complete conclusion of the investigation in a transparent and final manner and would leave when deemed appropriate. Morgan Chase and HSBC are also saying that they are not the only ones who want to talk about itPOWELL INTENDED TO KEEP A LOW PROFILE AND NOT TO OBSTRUCT THE OPERATIONS OF THE FOMC UNDER WALSH。

The progress of Walsh's nomination has become the focus of market attention. According to Chase Morgan, the Senate Banking Commission has voted on its nomination along party lines。HSBC noted that the Court-wide polls had not yet been completed, but that, if progress was successful, it was expected that Walsh would take office before the June meeting。

HSBC believes that Walsh may bring about systemic changes in the policy communication framework. The bank's interest rate strategist noted that Walsh had expressed doubts about the Fed's “point-line” rate forecasting mechanism. If forward-looking guidance is weakened in the future, the volatility of the bond market may increase, and long-term interest rate term premiums may also come under upward pressure。

Interest rate fluctuations coexist with policy uncertainty

For fixed-income investors, the message of this meeting is not unique. Short-end rates of return were suppressed by oil prices and hawk pricing, with interest rate reductions expected to be pushed back, but the hike has not yet become a consistent benchmark for investment banks。

According to the Bank, for the investment-grade bond market, the current increase in the rate of return has, to some extent, affected interest rate fluctuations. Since the interest rate implicit volatility is still below its peak in March this year, the technological profile of investment-grade bonds is still supported in a phased manner。

Morgan Chase suggests that short-end rate of return pressure, overvaluation of the medium-term national debt, and the confluence of policy uncertainties resulting from the change of chair mean that the interest rate market is entering a more complex game phase。

HSBC maintains a “maximum view” position at the multi-asset level and focuses on United States equities. According to the bank, although interest rates were expected to be revalued by eagles, risk assets were still strong in April, and optimism about the profitability of the artificially intelligent industrial chain remained an important narrative of the multi-asset market。

OVERALL, WALL STREET CONCLUDED WITH THIS FOMC THAT:The Fed did not change interest rates, but changed the market ' s probability distribution for the next move. Powell's departure, oil prices, and Warsh are going to be great, and investors are facing a new interest rate environment driven not by a mere schedule of interest rate reductions, but by a combination of inflation, energy, employment and policy communication。