The upcoming week is turning attention to the growth and Personal Consumption Expenditures (PCE) price index data to be released in the US. In the shadow of recession concerns worldwide, combating inflation continues, while the possible effects of tariffs implemented by US President Trump on the economy remained influential on market direction last week. The Federal Reserve (Fed) kept its policy rate unchanged as expected on Wednesday at 4.25-4.50 percent. Fed Chair Powell mentioned that tariffs could slow progress in fighting inflation, and concerns rose about a possible disagreement between Trump and the Fed management when Trump called for a rate cut on social media. The Fed’s decision not to change its estimates for the federal funds rate indicates the possibility of two interest rate cuts this year, according to a statement from the Bank. The statement also mentioned that unemployment rate has stabilized at a low level in recent months, continuing a strong labor market. Inflation was noted to remain somewhat higher. Additionally, in the statement where it was stated that the pace of balance sheet reduction would be slowed down, it was reported that the Committee would decrease the monthly cap for Treasury securities redemptions from $25 billion to $5 billion starting in April, while maintaining the monthly cap on agency debt and mortgage-backed securities redemptions at $35 billion.

WILL THE FED CUT RATES? Following these developments, markets are pricing an 89 percent chance of a rate cut by the Fed in June, while expectations that the Bank will make a total of two interest rate reductions this year continue to be strong. Analysts pointed out that next week’s release of growth and personal consumption expenditures price index data in the country might cause changes in the mentioned pricings, stating that an expected 2.3 percent growth in the US economy in the 4th quarter. On the other hand, Trump’s hint of being “flexible” on tariffs on Friday and stating that they are open to negotiations on tariffs with China supported equity markets. Talks between the US and Russia last week aimed at ending the Russia-Ukraine war led to some optimism, albeit limited. Trump’s statement following these talks, describing the phone call with Russian President Putin as “very good and productive,” and mentioning their agreement on an immediate ceasefire in all fields of energy and infrastructure stood out as a development supporting the equity markets.

“THERE IS A LOT OF UNCERTAINTY” While following statements from Fed officials, New York Fed President John Williams emphasized that there is currently a lot of uncertainty in both the economy and politics, noting multiple possible economic scenarios. Williams stressed that the Fed is not in a rush to make its next monetary policy decision, and predicting the outlook has become more difficult. Chicago Fed President Austan Goolsbee conveyed that there is clear concern in the business environment, highlighting that businesses are waiting for a resolution on tariffs and other fiscal policies before investing in projects. Additionally, last week, the Organization for Economic Cooperation and Development (OECD) published the Interim Economic Outlook Report titled “Guidance in Uncertainty.” The institution revised downward the global economic growth forecast for this year by 0.1 percent to 3.1 percent while predicting global economic growth will be 3 percent in 2026. In the report, it was anticipated that the growth in the US would slow from 2.2 percent this year to 1.6 percent in 2026.

BUYING DOMINATES AS BOND MARKETS ADVANCE As bond markets advanced with a buying trend in light of these developments, the US 10-year treasury bond yield closed the week at 4.25 percent with an approximate