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According to the latest data, the US Federal Open Market Committee (FOMC) maintained the federal funds target rate unchanged at 3.75% at its Q2 2026 (April) meeting, completely flat with the previous figure (Q1 2026). This is also the Fed's third time holding steady since the end of 2025. This resolution meets the general expectations of the market and analysts, reflecting that in an environment where the economy remains resilient but inflation pressure persists, the Fed has chosen a wait-and-see policy tone.
The most closely watched key detail in this decision-making process lies in the severe division among internal officials. According to the meeting statement, this resolution was passed with a vote of 8 to 4, setting the record for the most dissenting votes since 1992. Among them, one committee member advocated for a 25-basis-point rate cut to cope with potential weakness in the labor market, while three other members, although agreeing to keep the rate unchanged, strongly opposed the "easing bias" retained in the statement. This indicates that with the stagnation of disinflation, policymakers have significant differences regarding the direction of the next course of action.
Exploring the deep causes for keeping interest rates at high levels recently, it mainly stems from the dual squeeze of external shocks and internal inflation stickiness. Major institutions point out that recent military conflicts in the Middle East (such as Iran) have caused international crude oil prices to surge significantly, further pushing up overall inflation data; meanwhile, the lagging effects of tariff policies have also made it difficult for core prices to decline rapidly. A Charles Schwab analysis stated that in the short term, these factors not only hinder the Fed's pace of rate cuts, but some hawkish officials have even begun to stay vigilant about whether there is a need to resume rate hikes in the future.
Looking ahead, US monetary policy faces highly uncertain risks. In the short term (1-2 months), current Chair Powell is about to step down in May, and the market will pay close attention to whether his successor, Kevin Warsh, upon taking office, will make large-scale framework adjustments to the interpretation of inflation indicators and the balance sheet reduction policy. In the medium term (3-6 months), if the Middle East conflict continues to drive up energy prices, or if the job market cools sharply due to prolonged high borrowing costs, the Fed will be forced to make a difficult choice amidst the "stagflation" risks of controlling inflation versus preventing a recession. Investors should be wary of the potential impact of significant fluctuations in Treasury yields caused by policy swings.
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