Recently, the uncertainty caused by President Trump's trade policy has shaken the market, leading investors to focus on the Federal Reserve, trying to interpret the future impact of tariff policy on the path of MMF policy.

According to Zhitu Finance APP, on Tuesday, Rick Rieder, the Chief Investment Officer of Blackrock Global Fixed Income and Head of Global Allocation Investment Team, stated in a phone interview: "The biggest issue in the market right now is uncertainty." He pointed out that market volatility has increased, especially the liquidity of the stock market is far from what the trading volume reflects as abundant. "On the surface, the market seems to have enough liquidity, but the actual trading depth is extremely limited. This situation is particularly evident in the stock market and is much more severe than in the bonds market."

This Wednesday, the Federal Reserve will conclude a two-day MMF policy meeting, and Chairman Powell will announce the interest rate decision and the latest economic forecast summary. Investors are particularly concerned about the risk of 'stagflation' where inflation and unemployment rise simultaneously. Current market concerns mainly stem from the possibility that tariff policy may drag down economic growth and push up Consumer prices.

Rieder pointed out that what the market worries most is this stagflation situation, where economic growth slows down while inflation remains stubbornly above the Federal Reserve's 2% target. He stated that if Powell sends a dovish signal, indicating that the Federal Reserve is willing to quickly cut interest rates in the face of economic slowdown, the market may react positively. However, the reality is that the high inflation environment puts the Federal Reserve in a difficult position. "Current inflation levels are significantly above the target, making it hard for Powell to appear overly dovish."

On Tuesday, the U.S. stock market overall fell, with the Dow Jones Industrial Average dropping by 0.62%, the S&P 500 Index plunging by 1.07%, and the Nasdaq Composite Index, with a high proportion of Technology stocks, dropping sharply by 1.71%. As of now, both the S&P 500 Index and Nasdaq have fallen into the correction Range, down more than 10% from recent highs. Furthermore, the Chicago Board Options Exchange Volatility Index, regarded as the stock market panic index, has soared over 41% in the past month, with a single-day increase of about 6% on Tuesday, reaching 21.7, exceeding its long-term average of about 20.

At the same time, the volatility of the bond market has increased, but the extent is relatively moderate. Data shows that the ICE Bank of America Merrill Lynch Bond Market Volatility Index (MOVE Index) has risen by about 18% in the past month.

Kathy Jones, Chief Fixed Income Strategist at Charles Schwab, stated that the turmoil in the bond market reflects investors wavering between economic growth slowdown and inflation risk, as investors continue to assess the impact of new White House policies on Trade and immigration. "Currently, the bond market is more concerned about economic growth issues rather than inflation," she emphasized.

Since the beginning of this year, signs of economic growth slowing have prompted a decline in interest rates in the Bonds market. On Tuesday, the U.S. 10-Year Treasury Notes Yield fell by 2.4 basis points to 4.28%, a cumulative decline of nearly 30 basis points this year. According to the latest forecast from the Atlanta Fed's GDPNow model, the U.S. real GDP may contract by 1.8% in the first quarter, mainly due to the widening trade deficit, which may relate to businesses proactively responding to tariff measures.

Jones pointed out that the market is struggling to look ahead, but the uncertainty brought by tariff policies has made the outlook unclear. "We can't even predict what will happen six days from now, let alone six months later. This is also one of the important reasons why economic growth might slow down." She also mentioned that currently, businesses may delay investments or pause hiring due to the uncertainty of tariffs. However, she believes that the U.S. economy is unlikely to fall into recession this year, because the unemployment rate remains low, and although economic growth is slowing, it remains good.

Rieder also expressed that he does not believe the U.S. economy will fall into recession this year, but he is concerned about the pause in corporate investment and R&D activities. Companies are waiting for clearer signals on tariff policies, and he emphasized, "The large-scale tariff measures imposed on allies and major trading partners have unsettled the market and could have a negative impact on the economy."

The market currently widely expects that the Federal Reserve will maintain the benchmark interest rate at 4.25% to 4.5% this week. According to the CME FedWatch tool, traders expect that the Fed might cut rates two to three times later in 2025. However, Jones stated that the current inflation rate, which remains at a high level of around 3%, will limit the flexibility of the Fed's monetary policy. She emphasized, "Powell will find it difficult to have much room for dovish action."

Edit/New