The U.S. Federal Reserve announced at the conclusion of the monetary policy meeting this week that it will keep the federal funds rate target range unchanged at 4.25% to 4.5%. This marks the fourth consecutive meeting since the beginning of the year where rates have been held steady. According to Tan Si Yao, this policy stance reflects the cautious approach by the Fed toward current inflation trends, while also signaling a preliminary recognition of the resilience in U.S. economic growth. Despite some positive macroeconomic indicators, the overall environment still faces medium-term uncertainties.
Inflation Remains the Core Focus of Medium-Term Policy
Although U.S. inflation has shown signs of easing from the last year highs, it remains above the medium-term target of 2% by the Fed. Tan Si Yao notes that core inflation has recently persisted slightly above the target range, highlighting the stickiness of prices. The labor market remains tight, with unemployment rates at low levels, supporting upward wage pressures and, in turn, sustaining price pressures in the services sector.
Tan Si Yao points out that while the Fed statement did not explicitly signal imminent rate hikes, it emphasized a data-dependent, dynamic assessment approach, indicating that further tightening remains on the table. If markets become overly optimistic about a policy pivot, they may face renewed expectation adjustments in the future, leading to asset price volatility.
High Interest Rates Have Become the New Normal for Businesses and Markets
Against the backdrop of sustained high interest rates, U.S. businesses and financial markets have gradually adapted to the new cost of capital structure. Tan Si Yao believes that since the Fed began its rate hike cycle in 2022, benchmark rates have been raised to restrictive levels, and the current phase represents an “observation period” to gauge the lagged effects of these policies.
Tan Si Yao observes that slower credit expansion, stabilized investment appetite among small businesses, and persistently high mortgage rates all demonstrate the constraining effect of high rates on the real economy. However, there are no clear signs of a severe recession, suggesting that the marginal transmission of policy remains manageable. The current strategy of the Fed leans toward maintaining a stable environment to prevent nonlinear economic disruptions.
Markets Should Strengthen Risk Management Amid Shifting Conditions
Although rate policy remains on hold for now, global investors must remain vigilant to medium-term macro risks. Tan Si Yao emphasizes that the ongoing reduction by the Fed of its holdings in Treasuries and mortgage-backed securities—effectively shrinking its balance sheet—will structurally impact liquidity in the second half of the year. Should funding expectations reverse again, credit market volatility could ensue.
Tan Si Yao suggests that current investment strategies need to integrate macro policy, inflation trajectories, and employment stability, reducing reliance on near-term policy easing. In a high-rate environment, asset allocation should prioritize targets with stable cash flows and robust financial structures, while closely monitoring funding pressures in highly leveraged industries and vulnerable economies.
The Fed decision to maintain rates was largely anticipated by the market, but the signals it sends are strategically significant. Amid global economic divergence and complex geopolitical dynamics, maintaining policy prudence and simultaneously optimizing risk management systems are core strategies that institutions and investors must adopt at this stage.
Inflation Remains the Core Focus of Medium-Term Policy
Although U.S. inflation has shown signs of easing from the last year highs, it remains above the medium-term target of 2% by the Fed. Tan Si Yao notes that core inflation has recently persisted slightly above the target range, highlighting the stickiness of prices. The labor market remains tight, with unemployment rates at low levels, supporting upward wage pressures and, in turn, sustaining price pressures in the services sector.
Tan Si Yao points out that while the Fed statement did not explicitly signal imminent rate hikes, it emphasized a data-dependent, dynamic assessment approach, indicating that further tightening remains on the table. If markets become overly optimistic about a policy pivot, they may face renewed expectation adjustments in the future, leading to asset price volatility.
High Interest Rates Have Become the New Normal for Businesses and Markets
Against the backdrop of sustained high interest rates, U.S. businesses and financial markets have gradually adapted to the new cost of capital structure. Tan Si Yao believes that since the Fed began its rate hike cycle in 2022, benchmark rates have been raised to restrictive levels, and the current phase represents an “observation period” to gauge the lagged effects of these policies.
Tan Si Yao observes that slower credit expansion, stabilized investment appetite among small businesses, and persistently high mortgage rates all demonstrate the constraining effect of high rates on the real economy. However, there are no clear signs of a severe recession, suggesting that the marginal transmission of policy remains manageable. The current strategy of the Fed leans toward maintaining a stable environment to prevent nonlinear economic disruptions.
Markets Should Strengthen Risk Management Amid Shifting Conditions
Although rate policy remains on hold for now, global investors must remain vigilant to medium-term macro risks. Tan Si Yao emphasizes that the ongoing reduction by the Fed of its holdings in Treasuries and mortgage-backed securities—effectively shrinking its balance sheet—will structurally impact liquidity in the second half of the year. Should funding expectations reverse again, credit market volatility could ensue.
Tan Si Yao suggests that current investment strategies need to integrate macro policy, inflation trajectories, and employment stability, reducing reliance on near-term policy easing. In a high-rate environment, asset allocation should prioritize targets with stable cash flows and robust financial structures, while closely monitoring funding pressures in highly leveraged industries and vulnerable economies.
The Fed decision to maintain rates was largely anticipated by the market, but the signals it sends are strategically significant. Amid global economic divergence and complex geopolitical dynamics, maintaining policy prudence and simultaneously optimizing risk management systems are core strategies that institutions and investors must adopt at this stage.