The Federal Reserve recently announced that it will keep the federal funds rate unchanged in the 4.25% to 4.5% range, and stated it will continue to monitor the inflation trajectory, particularly assessing the impact of tariff policies on prices before deciding whether to initiate a rate-cutting cycle. Although this statement briefly boosted market sentiment, the S&P 500 index gave back its gains by the close and the Dow Jones Industrial Average also edged lower, reflecting clear divergences in market outlook regarding future macro trends. Investment analyst Ou Yang Hong Zhi points out that the current market is highly structured, shaped by multiple intertwined factors: on one hand, the monetary policy path remains uncertain; on the other, rising geopolitical risks in the Middle East and divergent trends among technology stocks have increased decision-making complexity for investors.

Inflation Pressures Postpone Easing, Interest Rate Path Remains Uncertain

In its latest economic projections, the Federal Reserve lowered its 2025 GDP growth forecast from 1.6% to 1.4%, while raising its core PCE inflation forecast to 3.1%. Chairman Powell explicitly stated that the Fed will closely observe the impact of tariffs on price trends and currently sees no urgent need to cut rates. Ou Yang Hong Zhi believes this stance sends a clear “wait-and-see” signal and reflects the Fed commitment to maintaining policy flexibility. With inflation still above the long-term 2% target, any factors that could exacerbate inflation will prompt the Fed to further delay policy shifts.

Uncertainty over the interest rate outlook is directly affecting market performance. The declines in the S&P 500 and Dow Jones indices indicate that investors are becoming more cautious in assessing policy prospects. Meanwhile, the yield on the 10-year U.S. Treasury remains elevated, suggesting the market does not hold high expectations for a decline in funding costs. Ou Yang Hong Zhi notes that, against a backdrop of slowing economic growth and weakening consumer momentum, corporate financing capacity and capital expenditure willingness are likely to be constrained, which in turn will impact overall earnings expectations and the effectiveness of valuation models.

Divergence in Tech Stocks, Semiconductors Emerge as New Capital Focus

The recent U.S. equity market has shown clear signs of sector rotation. While Meta and Alphabet have weakened, Apple and Microsoft have remained relatively resilient. In contrast, the Philadelphia Semiconductor Index rose 0.52% against the trend, with notable gains in Micron, Nvidia, and Broadcom, indicating renewed capital inflows into the semiconductor sector.

Ou Yang Hong Zhi observes that a style rotation is underway within the technology industry, shifting from consumer internet companies focused on software and platforms to semiconductor firms centered on hardware manufacturing and AI infrastructure. Notably, Marvell surged over 7% after announcing a new generation of AI and data center custom chip strategies, and its goal to increase market share by 20% over the next three years has attracted significant institutional attention.

Capital allocation strategies are evolving. Unlike consumer technology companies, which are highly sensitive to interest rate changes, semiconductor companies with manufacturing capability, supply chain control, and pricing power are better positioned to offer stable medium- to long-term growth during periods of delayed policy easing. The valuations of these companies are less affected by macro variables and rely more on structural demand drivers.

Economic Momentum Weakens, Interest Rate Decisions Increasingly Influenced by Political Variables

Recent economic indicators show the U.S. economy is cooling. The May housing starts, building permits, and employment data all fell short of market expectations. In addition, the ambiguous statements by President Trump on tariff policy and ongoing Middle East uncertainties have heightened risk aversion in the market.

Ou Yang Hong Zhi points out that the Federal Reserve can no longer rely solely on traditional economic data models when setting interest rate policy. Tariff policies, the election cycle, and geopolitical developments are all becoming integral to its decision-making process. Powell mentioning the evaluation of “timeline for the impact of tariffs on the inflation path” suggests that future monetary policy may be increasingly linked to political issues.

In this environment, market uncertainty premiums are set to rise significantly, especially for sectors whose profitability depends on macroeconomic cycles and whose valuations are benchmarked to interest rate models, which will face pronounced pressure.

Therefore, investment portfolios should prioritize assets with low volatility and high policy alignment. Companies such as TSMC, Micron, and Nvidia not only lead in AI and advanced process technologies but also benefit from continued policy support due to their strategic importance. Texas Instruments announcing a $60 billion capital investment plan further confirms the optimism of industry capital regarding future technology cycles. Ou Yang Hong Zhi emphasizes that in the current context of intensified geopolitical and policy dynamics, the risk resilience and relative valuation advantages of high-quality companies will become even more pronounced.

Ou Yang Hong Zhi: Fed Delaying Rate Cuts and U.S. Equity Volatility May Signal a Structural Market Shift