CICC: The Fed has limited room to cut interest rates during "stagflation-like" conditions.

A research report from CICC states that the Federal Reserve's decision to keep interest rates unchanged at its March meeting was in line with market expectations. The dot plot and economic forecasts indicate upward revisions to inflation expectations and a narrowing of the room for rate cuts, suggesting a cautious overall policy stance. Although Powell believes the uncertainty surrounding oil price shocks is significant and the economy remains resilient, we believe the actual situation is more complex. Tariffs and immigration policies have already constrained supply, and coupled with the oil price shock, the US economy is entering a "stagflation-like" phase. Simultaneously, private lending risks are emerging, and financial conditions may tighten spontaneously. Against this backdrop, the Fed may remain on hold in the short term due to inflation stickiness; in the medium term, as demand weakens or financial risks escalate, policy will face pressure to passively shift towards rate cuts. We expect the Fed to maintain interest rates unchanged in the first half of the year, with a resumption of rate cuts postponed until the second half. However, if rate cuts are a passive response to a deteriorating economic or financial environment, they will be unlikely to boost market risk appetite. (Jinshi)