Tonight, all eyes will be on Federal Reserve Chairman Powell. He will attend an event at the Chicago Economic Club and deliver a speech at 1:30 AM Beijing time on April 17. Global investors, Analysts, and market participants are all waiting for Powell's response to a series of recent economic dynamics.

Interestingly, the venue for Powell's speech is the same place where Trump visited in October 2024 and talked about high tariffs and the replacement of the Federal Reserve Chairman. Although the USA temporarily suspended tariffs on over 75 countries globally for 90 days, the overall economic outlook remains full of uncertainty, and concerns about a recession in the USA are rising.

Powell's speech today is bound to provide important clues regarding the current economic situation, the impact of tariffs, and the trajectory of interest rates in 2025. The market will focus on three mysteries:

• In the face of Trump's tariff policy and the pressure from the White House for a 'leadership change,' how will the Federal Reserve uphold its tradition of independent decision-making?

• With inflation receding but the risk of recession increasing, will Powell's expectations for rate cuts change?

• As the 'hawk-dove' debate within the Federal Reserve intensifies, will aggressive rate cut proposals from officials like Waller influence decision-making?

In previous remarks, Powell stated that Trump's tariffs exceeded the Federal Reserve's expectations, and the impact on the economy could be greater than anticipated. Therefore, he believes that the recent policy effects are highly uncertain, and he will wait for clearer conditions before making further adjustments. He also emphasized that the current policy stance is sound, and a wait-and-see attitude can be adopted while maintaining moderate restrictions. Regarding whether the USA will experience an economic recession, he pointed out that the Federal Reserve has not predicted the probability of a recession, but external forecasting institutions have raised that possibility. In terms of expectations for rate cuts, Powell did not change his views from the March meeting, believing that weak economic growth and rising inflation will offset each other, leading the Federal Reserve to maintain expectations for two rate cuts in 2025.

Powell is facing pressure from various parties to 'cut interest rates.' Inflation in the USA seems to be gradually receding. The latest March CPI data shows that inflation has a downward trend. At the same time, Trump has been supporting low-interest rate policies, which has now caused trouble for Powell. If interest rates are cut quickly and significantly, it could trigger inflation again; however, if the rate cut is delayed, it may drag down the US economy.

However, Powell and most Federal Reserve officials still believe that now is not the right time to cut interest rates. Although the US economy is beginning to show signs of weakness, especially in the job market, the Federal Reserve seems to prefer maintaining stable policy rates to prevent a new wave of inflation from Trump's tariffs. The minutes from the Fed's March meeting indicate that its economic forecasts and dot plots suggest that there could be two interest rate cuts in 2025.

Moreover, Trump's tariff policy not only increases the risk of the USA falling into recession but may also force the Federal Reserve to implement more aggressive interest rate cuts. At the same time, market performance remains sluggish, reflecting that the previous hopes for a shift to a looser Federal Reserve policy have not translated into a substantial rebound. Investors are choosing to wait and are becoming more cautious.

Notably, just this Monday, US Treasury Secretary Becerra announced that the White House will begin interviewing candidates to replace Powell as Federal Reserve Chairman. Powell's current term will expire in May 2026, and despite facing frequent political pressure from Trump, he has repeatedly stated in public appearances that he will complete his term. Rumors on Wall Street suggest that Federal Reserve Governor Waller is expected to succeed Powell after his term ends in 2026, and some of his viewpoints expressed this week differ from certainFederal Open Market Committee(FOMC) members.

Waller stated on Monday that if the President of the USA reinstates the tariff measures announced on April 2, then the Federal Reserve will have to quickly initiate a series of 'bad news' interest rate cuts. Waller warned that if Trump fully resumes tariffs after the pause period, US economic growth will 'almost stagnate,' and the unemployment rate will significantly rise from the current 4.2% to 5% next year. He also noted that while inflation might soar to 5% in the short term, the upward trend in price pressures could be temporary, which would open up space for the Federal Reserve to cut rates to mitigate the impact of economic slowdown.

Waller stated: 'Although I expect the inflation effects triggered by tariffs to be temporary, their negative impact on output and employment may be more persistent and must be considered an important factor in formulating monetary policy stance. If the degree of economic slowdown is serious enough to even touch the edge of recession, then I would be inclined to lower policy rates earlier and more drastically than previously anticipated.'

Waller's determination regarding the rising unemployment aligns with the consumer confidence survey results released by the New York Federal Reserve on Monday. The survey indicates that currently, 44% of the American public expects the unemployment rate to rise in the coming year, the highest level since the pandemic, and this figure has increased by 10 percentage points since Trump's presidency.

Other FOMC members generally advocate a "wait-and-see" approach. They stated that they would not rashly adjust interest rates before seeing actual signs of slowdown in hard data. Powell currently holds the same view.

Since the beginning of 2025, the Federal Reserve has maintained interest rates in the Range of 4.25%-4.5% due to widespread market concerns that Trump's trade policy would push up inflation while dragging down economic growth. The market currently expects the Federal Reserve to cut rates three times in 2025, with the first occurring in June. According to the CME "FedWatch Tool" on April 16, the probability of the Federal Reserve keeping interest rates unchanged in May is 81.4%, and the probability of a 25 basis point rate cut in June is 60.1%.

Additionally, several investment banks have recently increased their expectations for the Federal Reserve to cut rates this year, with Deutsche Bank being the latest to make modifications, now anticipating a 25 basis point cut in December, whereas previously expecting no rate cuts in 2025. Furthermore, it also expects the Federal Reserve to reduce rates two more times by 25 basis points in the first quarter of 2026, bringing the terminal rate down to 3.5%-3.75%.

Editor/Somer