All the positive economic comments from this week's Federal Reserve meeting have had a negative impact on investors, who no longer expect even a single rate cut this year.

At the post-meeting press conference, even though Federal Reserve Chairman Jerome Powell stated that net job growth was "zero" and inflation remained above the Fed's 2% target, he remained optimistic about the current economic situation. Powell described economic growth as "robust" and dismissed any notion that stagflation was forming.

Although the Federal Open Market Committee (FOMC) statement mentioned "uncertainty" related to the war with Iran, Powell never directly addressed the issue. With the escalating situation in the Middle East and the Fed seemingly unwilling to react, investors are pessimistic about the prospects for loose monetary policy.



These events coincided with another round of adjustments in the federal funds futures market. According to an analysis by the CME Group’s FedWatch tool, the probability of a 0.25 percentage point cut in the Fed’s benchmark interest rate this year is only 28.3%, while the probability of a 25 basis point rate hike has even increased to 22.8%.

Market veteran Ed Yardeni calls this reaction a “taper tantrum,” a metaphor for a period when investors reacted sharply to expectations of tighter Federal Reserve policy.

A report released by Yardeni stated, "The combination of the war and news from the Federal Reserve triggered a panic sell-off in the stock market, with investors believing that monetary policy may be inadequate in addressing the economic consequences of the war."

He added, "In fact, Fed Chairman Powell has barely mentioned the war." "It's worth noting that he believes the economy and labor market are in good shape and core inflation is likely to ease in the coming months, which means the Fed will remain on hold for the foreseeable future."

Before the outbreak of war, traders expected a rate cut in June, another in September, and possibly another before the end of the year if developments in the labor market and inflation allowed.

The question is which of the Fed’s so-called dual mandates will receive more attention: the weak labor market or inflation, which is still above the central bank’s 2% target but far below previous highs.

This week's meeting saw officials make some minor adjustments to their personal expectations for interest rates, known as the "dot plot." This prompted investors to scrutinize Powell's remarks for clues about the Federal Open Market Committee's future direction.

"Powell relied on an argument that has repeatedly supported the Fed's patience over the past two years: the economy is more resilient to shocks than expected," Fundstrat analysts said in a report. "However, the market reaction appears to be that Powell has significantly tightened the policy outlook."

The chairman mentioned the uncertainty of the forecast more than a dozen times in his speech, linking many future scenarios to the oil shock and the impact of tariffs on inflation.

Fundstrat's team stated, "The next catalyst is whether upcoming inflation data will show that price pressures on tariff-sensitive goods are beginning to ease, while rising energy costs have not yet spread widely." "Until then, Powell's framework remains unchanged: cautious, conditional, and still unwilling to act based solely on forecasts."

The Federal Reserve's next meeting will be held on April 28-29. Traders believe there is no chance of a rate cut, while the probability of a 0.25 percentage point rate hike is 7.2%.