The Fed's hint of a smaller rate cut this year deepens the divide between it and its peers, who have already begun to cut rates.

The message from the Fed is twofold: officials not only expect to lower rates only once this year, but they also believe that the era of high interest rates will continue.

In contrast, the Bank of Canada last week lowered its overnight benchmark rate by 25 basis points to 4.75%, becoming the first central bank in the Group of Seven to start a loose cycle. The European Central Bank followed suit and cut its benchmark rate by 25 basis points to 3.75%, while the Swiss National Bank also took action to lower interest rates in March.

The Fed's policy is important for the global economy. The Fed's rate hike pushed the dollar to new heights and will continue to attract foreign capital away from its competitor economies, especially emerging economies.

According to foreign media analysis, maintaining the Fed's interest rate unchanged may lead to harmful foreign exchange fluctuations and may break the process of global disinflation.

Kristina Hooper, chief global market strategist at Invesco, said,"The overall theme of developed Western economies is that we are on the path of interest rate cuts, but not suddenly. The Fed did not lead the way this time, we saw two central banks in the G7 cut interest rates last week, but not the Fed."

Powell told reporters after maintaining the policy, "We have stated that we do not expect a rate cut until we have greater confidence that we are moving closer to 2% inflation. So far this year, the data has not given us greater confidence."

Policymakers in various countries see room for different paths in the future, indicating that there is room for divergence in the policies of central banks before crossing the threshold that could exacerbate market volatility.

Bank of Canada Governor McCallum said at a panel discussion in Montreal on Wednesday,"There are limits to rate differentiation, but we are not close to that limit."

This split will only strengthen the mainstream trend in the currency market in 2024: the high relative yield of the United States makes investing in U.S. assets, namely the dollar, an irresistible choice.

Powell hinted that the Fed might maintain higher interest rates for a longer period of time, which raises a question: How much can other major central banks push rate cuts without causing harmful currency fluctuations and risks to the process of reducing inflation?

Based on the SHOK model of foreign media, for example, the impact of depreciation on input inflation may be small. This alone will not change the policy of the ECB, but it is still worth paying attention to.

Except for Japan, the currency of central banks in developed countries that have already lowered interest rates has fallen significantly. The euro against the dollar fell by more than 2%, the Canadian dollar and the Swedish krona fell by more than 3%, and the Swiss franc fell by nearly 6%.

After the Bank of Japan decided to maintain its monetary policy and said it would detail its bond-buying plan at its next meeting, the yen weakened significantly during Friday's Asian session. This decision has stimulated the sale of the yen, as investors expect to see details of bond-buying cuts.

According to a recent study by Howard Du and Vadim Iaralov, foreign exchange strategists at Bank of America, driven by the relative yield and growth advantages of the United States, the dollar's buying spree this year was dominated by investors in Europe and Asia outside of the U.S. market.

Nathan Thooft of Manulife Investment Management said,"People believe that the Fed is more hawkish than most global central banks. Ultimately, the Fed will begin a rate-cutting cycle like everyone else, but relative rates are at a higher level and begin later."

Jerome Haegeli, chief economist at Swiss Re, who once worked at the Swiss National Bank, said that even if the Fed really cuts interest rates, given that inflation in some areas remains high and far above the 2% target, the rate cut may also be limited in magnitude.

He said, "The market's short-term thinking overlooks a fact that the Fed's rate cuts may be far lower than usual. The trend of maintaining high interest rates in the United States will not change and will last for a long time."

Traders believe that the Fed is likely to cut interest rates in September, after a key basic inflation indicator recorded its smallest annual increase in more than three years. Because policymakers in various countries have warned that inflation is still a major threat, there is no guarantee that the ECB or other central banks will have further room for interest rate cuts, which could limit this trend of differentiation.

Fabio Panetta, a member of the European Central Bank's executive board, said at the same Montreal meeting with McCallum,"Central banks on both sides of the Atlantic must be more 'stubborn' than inflation, that's what I see in common."

The Federal Reserve is not the only central bank with a hawkish stance. With the yen still weak, the Bank of Japan is under pressure to tighten monetary policy, while the Reserve Bank of Australia continues to warn about ongoing price pressures. Solita Marcelli, Chief Investment Officer for the Americas at UBS Global Wealth Management, said,

"Of course, another risk is cutting interest rates prematurely, causing inflation to rise again and finally having to reverse the rate-cutting process, which is exactly why the Fed was very patient when launching the easing cycle."