Fed Hawkishness Expected to Persist Despite Potential Resolution of Geopolitical Conflicts

Key Facts

1Wall Street analysts expect the Federal Reserve to maintain its hawkish stance even if Trump claims the war is over.

2Macquarie economists warned that the conflict has caused "psychic damage" to consumers and investors that will affect economic data.

3Economic data for the April cycle (released in May) is expected to show adverse effects from the conflict period.

Wall Street analysts anticipate that the Federal Reserve will maintain its hawkish monetary policy stance, even if Donald Trump claims an end to current geopolitical conflicts. Economists at Macquarie Group warned that the recent turmoil has inflicted "psychic damage" on both consumers and investors, which is expected to weigh on economic sentiment for the foreseeable future. Data for the April economic cycle, set for release in May, is likely to reflect the adverse effects of the conflict period rather than an immediate recovery. This lag in data reporting suggests the Fed will be unable to pivot to a dovish stance immediately following any cessation of hostilities. Consequently, financial institutions expect interest rates to remain elevated as the central bank works to combat lingering economic distortions and inflation. The prospect of prolonged high rates is viewed as bearish for major equity indices like SPY and QQQ, while providing support for the US Dollar (DXY) and Treasury yields.