Federal Reserve Chairman Jerome Powell‘s Wednesday remarks hint at a more patient and cautious approach to monetary policy, suggesting interest rates may hold steady longer than anticipated.

During the press conference following the Fed’s decision to hold rates steady in May, Powell emphasized the next policy is “unlikely” to be a rate hike, pushing back market fears of tighter interest rates.

Indeed, once there is enough confidence of inflation returning to the target level of 2%, “rate cuts would be in scope,” the Fed chair stated.

His statements were widely interpreted by the financial community as having dovish undertones. This perspective was also reflected in subsequent market reactions which saw Treasury yields falling.

As a result, bonds witnessed some gains, with the iShares 20+ Year Treasury Bond ETF ( TLT ) up 0.8%.

Broader uncertainties surrounding Fed policies led to volatility in risky assets, with stocks erasing gains during the session and the SPDR S&P 500 ETF Trust ( SPY ) closing 0.3% lower.

It is evident that after this May’s FOMC meeting and Powell’s subsequent comments, there is a diverse range of opinions among Wall Street analysts regarding the future direction of interest rates. Benzinga has gathered analyst perspectives ranging from the most hawkish to the most dovish.

Bank of America Sticks To One Cut Projection

Michael Gapen, economist at Bank of America, believes that the Federal Reserve now anticipates a longer period before it feels confident enough to lower interest rates.

“The Fed has shifted to a wait-and-see mode and is prepared to keep its policy rate where it is for as long as needed. Needing more time means later cuts,” he stated.

He was unsurprised by the balance sheet policies, finding the Treasury runoff cap slightly lower than expected but aligned with the goal of a prolonged reduction process. Gapen agrees with a high bar for rate hikes and projects the first-rate cut in December, assuming inflation remains stickier and slower to come down.

Goldman Sachs Confirms Two Rate Cuts, Backs Powell’s Declining Inflation Outlook

Goldman Sachs’ David Mericle interpreted Federal Reserve Chair Jerome Powell‘s statements as primarily dovish, with the investment bank maintaining a forecast of two rate cuts later in the year.

“The most notable aspect of the press conference was Powell's strong pushback against the possibility of rate hikes,” Mericle stated.

Mericle also pointed out that Powell would be comfortable delaying rate cuts if inflation progress faltered, indicating that the bar for raising rates remains high.

“Powell's comments on inflation were particularly dovish,” Mericle noted, aligning with Goldman's inflation outlook which anticipates a shift back to lower inflation levels within the year. He emphasized Powell’s dismissal of early 2023’s inflation uptick and his confidence in declining housing costs and supply-side improvements contributing to disinflation.

ING Sees Three Rate Cuts Starting From September

Powell stressed that the current monetary policy is “restrictive” and considered an interest rate hike “unlikely,” said James Knightley, economist at ING Group.

He revisited his April 16 remarks, expressing concern that gaining confidence in declining inflation and proceeding with interest rate cuts is taking “longer than thought.”

With inflation now dropping below 3%, Powell emphasized a renewed focus on the Fed’s employment objectives, stating that the current policy stance “is in a good place.”

ING Group forecasts the first rate cut could come as early as the September FOMC meeting, with additional reductions in November and December. This forecast is more aggressive compared to the general consensus, which anticipates a total of 50 basis points cut this year. ING’s outlook is tempered by business and employment surveys signaling a slowdown, suggesting that more pronounced easing of inflation and hiring may align to justify the anticipated rate cuts.

Citi Retains The Street’s Most Dovish Outlook

Citi analysts focused on the Fed’s dovish pivot against market fears of a hawkish turn.

“Chair Powell and the committee dovishly suggested that while progress on inflation had stalled in Q1, cuts are still coming,” they stated.

Citi expects that either softer inflation data or cooler labor market developments would bring the Fed to lower rates.

Citi predicts a start to rate reductions as early as July, with rate cuts proceeding at each meeting for a total of 100bp of cuts by year end.

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