Next week, the focus will shift to the growth and Personal Consumption Expenditure (PCE) price index data to be released in the US.

While the fight against inflation continues amid recession concerns worldwide, the possible effects of President Trump’s tariffs on the economy continued to influence market direction last week. The Fed kept its policy rate unchanged at 4.25-4.50% on Wednesday, in line with expectations. Fed Chairman Powell mentioned that tariffs could slow down progress in fighting inflation. Furthermore, Trump’s call for a rate cut on social media raised concerns about a potential disagreement between Trump and the Fed. The Fed not changing its estimates for the federal funds rate indicates the likelihood of two rate cuts this year while mentioning that unemployment rate has stabilized at a low level recently and labor market conditions remain strong. The statement highlighted that inflation continues to remain somewhat high. Additionally, the slowing down of the balance sheet reduction pace was noted in the statement, with the Committee decreasing the monthly cap on Treasury securities to 5 billion dollars from 25 billion dollars starting from April, maintaining the monthly cap on mortgage-backed securities at 35 billion dollars.

WILL THE FED CUT RATES? Following these developments, in the money markets, the possibility of the Fed cutting rates in June was priced at 89%, while expectations of a total of 2 rate cuts by the end of the year remained strong. Analysts pointed out that next week’s growth and personal consumption expenditure index data in the country could cause changes in these pricing. It is reported that the US economy is expected to show 2.3% growth in the 4th quarter. Moreover, Trump’s indication on Friday that tariffs could be “flexible” and his openness to negotiations regarding customs duties with China supported the stock markets. Limited as they were, the talks between the US and Russia last week aimed at ending the Russia-Ukraine war generated some optimism. Trump’s statement about his phone call with Russian President Putin being “very good and productive,” agreeing on an immediate ceasefire in all areas of energy and infrastructure, was highlighted as a development that supported the stock markets.

“MUCH UNCERTAINTY EXISTS” As Fed officials’ comments continued being monitored, New York Fed President John Williams emphasized that there is currently a lot of uncertainty in the economy and politics, mentioning that many different economic scenarios are possible. Stressing that the Fed is not in a rush to make the next monetary policy decision, Williams noted that predicting the outlook has become more challenging. Chicago Fed President Austan Goolsbee reported a significant concern among businesses, stating that investments in projects are expected to wait until tariffs and other fiscal policies are resolved. Additionally, last week, the Organization for Economic Cooperation and Development (OECD) published the Mid-Term Economic Outlook Report titled “Guidance in Uncertainty”. The institution revised global economic growth forecast downward by 0.1% to 3.1% for this year while predicting global economic growth to be 3% in 2026. The report anticipated that growth in the US of 2.2% this year would slow to 1.6% in 2026.

BULLISH TREND DOMINANT As bonds saw a bullish trend, with the US 10-year Treasury yield closing the week at 4.25% after a decrease of approximately 10 basis points. Dropping to 103.2 last week, reaching the lowest level since October 2024, the dollar index closed the week at 104.1, up 0.3%. Meanwhile, the price of an ounce of gold concluded the week at $3,024 with