"Interest rate cut expectations are 'wrongly killed'? Federal Reserve officials speak out to stabilize expectations, two directors say rate cuts may still happen this year."

Against the backdrop of the market's dramatic volatility and significant adjustments in interest rate expectations caused by the Middle East conflict, Federal Reserve officials stepped in to stabilize expectations. Two Fed governors explicitly stated on Friday that they still expect to cut interest rates before the end of the year, indicating that Wall Street's recent bets on abandoning rate cuts or even raising rates may be too aggressive. Fed governors Wall and Vice Chair Bowman spoke out on Friday, after the market had largely ruled out the possibility of a rate cut in 2026. Meanwhile, another governor, Milan, also supported a rate cut and voted against keeping rates unchanged at this week's policy meeting, advocating for an immediate 25 basis point cut. In just three weeks, market expectations have undergone a drastic reversal. Previously, traders generally expected the Fed to cut rates multiple times, but as the Middle East conflict pushed up oil prices and inflation concerns increased, the market began to discuss the possibility of a shift towards raising rates. However, from the official perspective of the Federal Reserve, the policy path has not fundamentally changed. The updated dot plot this week still shows that 19 policymakers overall expect to cut rates once this year. Wall and Bowman's latest statements also confirm this. Bowman said in an interview that considering the weakening labor market, she expects three rate cuts by the end of 2026. Wall, on the other hand, is more cautious, but also leaves room for rate cuts. He pointed out that if the labor market continues to weaken, he will once again support a rate cut before the end of the year. The recent "hawkishness" in market sentiment partly stems from Federal Reserve Chairman Powell's remarks. In this week's press conference, Powell emphasized the inflation risks brought about by the Iran conflict, with relatively limited discussion on the deterioration of the labor market, while repeatedly highlighting the high level of uncertainty in the future path. This has led the market to interpret it as a possible shift towards tighter policy. However, employment data is sending mixed signals. The US lost 92,000 jobs in February, and if future data continues this trend, it would signify a significant weakening of the labor market. Some institutions predict that the seasonal pattern of weak employment in the spring and summer may reappear, pushing up the unemployment rate and ultimately forcing the Fed to shift towards rate cuts. On the other hand, to realize a path of rate hikes, multiple conditions must be met simultaneously, including keeping the unemployment rate below 4.5%, core inflation rising to above 3.2% annually, and maintaining stability on the policy front. This scenario is more likely to occur in an environment of moderate and sustained increases in oil prices, but the probability of it happening is currently limited.