--- title: "CICC: The Federal Reserve may find it difficult to cut interest rates this year, and assets driven solely by liquidity may continue to face pressure" type: "News" locale: "en" url: "https://longbridge.com/en/news/286829522.md" description: "CICC released a research report indicating that recent U.S. inflation data exceeded expectations, and the job market remains stable. It is expected that the Federal Reserve will find it difficult to cut interest rates within the year, and U.S. dollar liquidity may tighten. Assets that solely rely on liquidity-driven factors will continue to face pressure. Concerns about inflation have intensified, with the April CPI rising 3.8% year-on-year and core CPI rising 2.8%, both exceeding the Federal Reserve's target" datetime: "2026-05-18T23:52:02.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/286829522.md) - [en](https://longbridge.com/en/news/286829522.md) - [zh-HK](https://longbridge.com/zh-HK/news/286829522.md) --- # CICC: The Federal Reserve may find it difficult to cut interest rates this year, and assets driven solely by liquidity may continue to face pressure According to the Zhitong Finance APP, China International Capital Corporation (CICC) released a research report stating that several recent U.S. inflation data have exceeded expectations, while the job market has stabilized. There has been a sell-off in bonds, and market concerns about inflation continue to rise. Meanwhile, there has been no substantial progress in the U.S.-Iran peace talks, and the Strait of Hormuz remains effectively closed, making the upward risk of energy prices difficult to dissipate. Under the baseline scenario, the bank expects U.S. PCE inflation to remain above 3.5% for the year, with core PCE inflation above 3%, both significantly higher than the Federal Reserve's 2% policy target. Against this backdrop, the Federal Reserve's policy stance is expected to become more cautious, making further interest rate cuts difficult within the year (previously expected to occur in the fourth quarter). The new chairman, Philip Jefferson, will prioritize establishing policy credibility, promptly conveying clear anti-inflation signals to the market, which is both a necessity and a necessary measure to stabilize expectations. For the market, this means an increased probability of marginal tightening of U.S. dollar liquidity, and assets driven solely by liquidity may continue to face pressure. ## CICC's main viewpoints are as follows: **Inflation concerns continue to rise, while employment stabilizes** Recent U.S. inflation data has exceeded market expectations, attracting market attention. In April, the overall CPI rose 3.8% year-on-year, reaching the highest level since 2023; the core CPI, excluding food and energy, rose 2.8% year-on-year, also higher than expected. In terms of PPI, it surged 1.4% month-on-month, with a year-on-year increase of 6%, both representing the **fastest growth rate** since 2022. The import price index rose 1.9% month-on-month and 4.2% year-on-year, marking the **largest increase** since March 2022. Among these, the price index for goods imported from China surged 0.8% month-on-month, with a year-on-year growth rate turning positive for the **first time** in 2023. Although the aforementioned inflation pressures mainly stem from rising energy prices, there are also signs of inflation diffusion in the data. For example, food price increases significantly widened in April, which may be related to upstream costs being transmitted to the agricultural sector through fertilizers and rising food transportation and logistics costs. Airfare prices have risen for two consecutive months, reflecting airlines' ongoing transfer of fuel cost pressures to consumers. Meanwhile, the rapid expansion of AI-related demand has led to global storage and chip supply tightness, pushing prices of personal computers and related hardware accessories to continue rising, further reinforcing inflation stickiness. This indicates that price pressures are no longer limited to the energy sector but are beginning to manifest across a broader range of categories. Looking ahead, if there are no substantial breakthroughs in U.S.-Iran negotiations and the Strait of Hormuz remains closed, coupled with accelerated consumption of crude oil inventories, international oil prices will face upward pressure. Based on CICC's commodity team's judgment on future oil price trends, under the baseline scenario, the bank expects overall PCE inflation to rise to 3.9% in the second quarter, before falling back to around 3.8% by the end of the year; core PCE inflation is expected to rise to 4.0% in the third quarter, before falling back to around 3.4% by the end of the year. Along this path, inflation will continue to be significantly above the Federal Reserve's 2% policy target, making conditions for interest rate cuts difficult to establish. Another factor hindering interest rate cuts is the stabilization of the labor market. In April, the number of new non-farm jobs reached 115,000, raising the average monthly increase in non-farm jobs from January to April to 76,000, a significant improvement compared to a decrease of 8,000 in the average monthly increase in the second half of last year The unemployment rate remains around 4.3%, a slight decline from the end of last year. In terms of the causes of unemployment, the number of permanent job losses remains stable and has not continued to rise; the weekly initial claims for unemployment benefits also remain low, indicating that there has not been a large-scale wave of layoffs. In addition, as the Trump administration continues to tighten immigration policies, the "breakeven" employment level needed to maintain a stable unemployment rate has clearly decreased—according to the latest estimates from the Dallas Federal Reserve, the breakeven employment growth level has dropped to near zero by 2026. This means that even if employment growth is lackluster, the unemployment rate may not see a significant rise, which will further raise the threshold for interest rate cuts. **It will be difficult for Waller to cut rates upon taking office; establishing credibility is key** The market is also concerned about another issue: whether the new Federal Reserve Chairman Waller, upon taking office, will be able to push for earlier rate cuts. From Waller's stance, he favors a policy combination of "rate cuts + balance sheet reduction," which means promoting lower interest rates while reducing the balance sheet. However, in the current macroeconomic environment, the bank believes that even if he officially takes office, it will still be quite challenging to push for rate cuts in the short term. The core reason is that Federal Reserve monetary policy is not decided solely by the chairman, but rather formed by a collective vote of the Federal Open Market Committee (FOMC). At the April FOMC meeting, three regional Fed officials already opposed including easing guidance in the monetary policy statement, and if there is no substantial improvement in the inflation outlook, they are unlikely to endorse rate cuts. Furthermore, the current chairman Powell will continue to serve as a governor after stepping down, which means that during Waller's initial period in office, the internal structure of the Federal Reserve will be in a delicate transitional phase, making it difficult to form a strong consensus. More importantly, as the new Federal Reserve chairman, Waller's primary task upon taking office will be to quickly **establish policy credibility**. In the context of rising inflationary pressures, ignoring this will severely undermine his policy credibility and pose risks for subsequent governance. Of course, under the current political and economic constraints, Waller will not easily choose to raise interest rates, which contradicts Trump's policy preferences and the will of the American public. However, under the constraint of not raising rates, how to convey a clear anti-inflation signal to the market will be an important test he faces. The bank believes that the best option for the Federal Reserve at present is to abandon rate cut guidance as a signal to avoid falling behind the curve. In addition, if market concerns about inflation become more pronounced, it is even possible that Waller may strengthen expectations for balance sheet reduction as an alternative to rate hikes. The benefit of this approach is that it reinforces the signal of inflation suppression while maintaining consistency in policy statements. Regardless, in the face of inflation, the market needs a **"less accommodative"** Federal Reserve. This means that dollar liquidity is more likely to tighten marginally, and assets driven solely by liquidity may continue to face pressure ### Related Stocks - [601995.CN](https://longbridge.com/en/quote/601995.CN.md) - [03908.HK](https://longbridge.com/en/quote/03908.HK.md) ## Related News & Research - [CICC: The Federal Reserve may find it difficult to cut interest rates this year.](https://longbridge.com/en/news/286848459.md) - [ROMANIAN CENTRAL BANK GOVERNOR SAYS INFLATION COULD PEAK IN JULY AT AROUND 11%](https://longbridge.com/en/news/286880955.md) - [Fed's Warsh has a difficult boss and tough job ahead, says StanChart CEO Winters](https://longbridge.com/en/news/286878138.md) - [What are the main events for today?](https://longbridge.com/en/news/286046404.md) - [Buy bank stocks as Fed will raise interest rates amid higher inflation: Regan Capital's Weinand](https://longbridge.com/en/news/286455606.md)