The significant changes announced and expected to be announced in the United States in terms of trade, immigration and fiscal spending mean that interest rate expectations may change later this year.

The Federal Reserve announced on Wednesday (March 19) that it would keep interest rates unchanged. At the same time, the Economic Forecast Summary showed that it could cut interest rates twice this year, the same as the forecast made by the Federal Reserve at its December meeting last year.

The Fed's wait-and-see position is enough to bring a boost to Wall Street. The Dow Jones Industrial Average rose 384 points, or 0.9%, the S&P 500 rose 1.1%, and the Nasdaq Composite rose 1.4%.

But, investors should not be complacent due to the forecast of a two-time rate cut, as significant changes have been announced and expected to be announced in the U.S. in terms of trade, immigration and fiscal spending, meaning interest rate expectations may change later this year.

In other words, the Fed may cut interest rates twice, and the number of interest rates may be more than two, or less than two, or not.

Feder Chairman Powell said at a press conference on Wednesday: "The uncertainty is extremely high at present, and we must first observe how the situation will change. As far as I know, no one has much confidence in their predictions."

Enterprise futures market's forecast of the probability of interest rate cuts in the next four interest rate meetings

Note: The current target range of federal funds interest rates is between 4.25% and 4.5%. Data is as of 3:25 pm Eastern Time on March 19.

Source: CME Federal Reserve Observation

The Federal Reserve expects that the U.S. economic growth will slow down this year and inflation will rise, which means that the Federal Reserve expects the U.S. economy to fall into stagflation this year. The Economic Forecast Summary shows that the Federal Reserve revised its preliminary forecast for the US real GDP growth rate in 2025 to 1.7% from 2.1% in December last year, and the unemployment rate is expected to be 4.4% this year, higher than the previous estimate of 4.3%.

Inflation expectations for 2025 and 2026 are particularly eye-catching. The Fed currently expects the PCE price index to rise at 2.7% by the end of this year, up from 2.5% expected in December last year. In addition, the Fed expects inflation to fall to the 2% target set by the Fed in 2027.

As inflation expectations rise, the Fed may continue to wait and see without cutting interest rates this year, but, although the labor market is currently stable, Powell pointed out that if the number of layoffs increases significantly, it may quickly push up the unemployment rate, which in turn prompts the Fed to cut interest rates multiple times for the rest of the year.

At the press conference that lasted about 60 minutes, Powell mentioned the term "uncertainty" 18 times. In an official statement after the meeting, Fed officials also pointed out that "the uncertainty of the economic outlook has risen."

One ​​of the reasons for the rise in economic outlook uncertainty is the possible impact of Trump's tariffs. Powell said: "The Summary of Economic Forecasts does not show that inflation will decline further, and tariffs are the main reason."

Powell pointed out that the rise in prices caused by tariffs is the Fed's "basic expectation situation", but the price increase caused by tariffs will be a "temporary phenomenon." "If inflation caused by tariffs disappears quickly without taking action, then we can not worry too much about inflation, which will depend on whether the inflation caused by tariffs rises very quickly and will also depend on whether inflation expectations are effectively controlled." Powell said that even without considering the impact of tariffs, the U.S. inflation path this year may be bumpy. He pointed out that commodity inflation rose sharply in the first two months of this year, exceeding any substantial impact of tariffs. But Powell reiterated that he believes the Fed's interest rates can handle changing economic dynamics well. He said officials are focusing on "hard data" rather than "soft data" such as sentiment and confidence indicators that have declined sharply in recent months. "Hard data such as employment and consumer spending are still healthy," Powell said. "

Powell said the Fed has not overlooked the decline in consumer confidence, but the correlation between such data and economic activity has not been strong recently.

Powell also downplayed the importance of a sharp rise in longer-term inflation expectations in the University of Michigan Consumer Confidence Survey, calling it an "outlier." He noted that inflation expectations measured by other surveys, including surveys conducted by the Federal Reserve Bank of New York, remained stable.

The Fed's wait-and-see attitude towards economic activity and inflation means that it may take several months for Fed officials to obtain the "clearity" they are seeking. "The FOMC has sharply lowered its economic growth expectations and raised its forecasts for core inflation, highlighting the adverse effects of the U.S. tariff hike. In addition, recent surveys have shown that the U.S. government's inflation expectations have risen sharply in the next five years, and the Fed's work will become more difficult, which also means that officials will remain silent for a considerable period of time and delay further interest rate cuts." Joe Brusuelas, chief economist at RSM, pointed out that the Fed's immovable remain stable may accelerate U.S. trade The impact brought by him, he said: "Due to the uncertainty of the intensity and scope of the trade shock, the Fed's wait-and-see position will be challenged. The biggest enlightenment this interest rate decision brings to companies, policy makers and investors is to avoid risks until the intensity of the trade shock can be determined and the new trade scale and financial rules are formulated."